Frequently Asked Questions About Uniswap
What is Uniswap and how does it differ from centralized exchanges?
Uniswap is a decentralized exchange protocol that operates through automated smart contracts on the Ethereum blockchain. Unlike centralized exchanges like Binance or Coinbase, Uniswap doesn't require user registration, KYC verification, or custody of funds. It uses an automated market maker model rather than an order book, allowing for permissionless trading directly from users' wallets.
How do I connect my wallet to the Uniswap app?
To connect your wallet to Uniswap, visit app.uniswap.org and click the "Connect Wallet" button in the top right corner. Select your preferred wallet from the options provided, which typically include MetaMask, WalletConnect, Coinbase Wallet, and others. Follow the wallet-specific prompts to authorize the connection.
What are the differences between Uniswap V2 and V3?
The main difference is that Uniswap V3 introduces concentrated liquidity, allowing liquidity providers to focus their capital within specific price ranges rather than across the entire price curve. V3 also offers multiple fee tiers (0.05%, 0.3%, 1%), non-fungible liquidity positions represented as NFTs, and improved price oracle functionality.
How are trading fees calculated on Uniswap?
In Uniswap V2, all trades incur a 0.3% fee that goes entirely to liquidity providers. In V3, fees vary by pool, with options of 0.05%, 0.3%, or 1%, selected based on expected pair volatility. Additionally, if activated by governance, a protocol fee of 1/6 of the LP fee may be charged to support ongoing development.
What is impermanent loss and how can I mitigate it?
Impermanent loss occurs when the price ratio of tokens in a liquidity pool changes compared to when you deposited them. To mitigate this risk, consider providing liquidity to pairs with correlated price movements (like stablecoin pairs), using Uniswap V3's concentrated liquidity to narrow your price range, or implementing hedging strategies with derivatives.
Can I use Uniswap on networks other than Ethereum?
Yes, Uniswap V3 has been deployed on multiple networks including Polygon, Arbitrum, Optimism, and other Ethereum layer-2 solutions. These alternative networks typically offer lower transaction fees while maintaining compatibility with the Ethereum ecosystem.
How does Uniswap governance work?
Uniswap governance operates through the UNI token, which grants voting rights on protocol changes. Proposals follow a structured process from discussion to temperature check to formal on-chain voting. To pass, proposals need at least 10 million UNI votes in favor. Token holders can vote directly or delegate their voting power to active community members.
Is Uniswap safe to use?
Uniswap's core smart contracts have been audited by multiple security firms and have functioned securely since launch. However, users should still exercise caution regarding which tokens they trade, as anyone can create tokens and liquidity pools on Uniswap. The main security concerns come from phishing websites, fake tokens, and user error rather than protocol vulnerabilities.
What's the difference between the Uniswap protocol and the UNI token?
The Uniswap protocol refers to the collection of smart contracts that enable decentralized trading on the Ethereum blockchain. The UNI token is the governance token that allows holders to vote on protocol changes and potentially receive a share of protocol fees if activated by governance.
How can I earn yield on Uniswap?
The primary way to earn yield on Uniswap is by becoming a liquidity provider – contributing token pairs to liquidity pools and earning a share of trading fees. With Uniswap V3, you can potentially enhance returns by concentrating liquidity in active price ranges. Additionally, some external protocols offer incentives for Uniswap liquidity providers through yield farming programs.