How Uniswap Works: Liquidity Pools, Swaps and Your First Trade

Why Uniswap Exists

Centralized exchanges hold customer funds, require accounts and decide which tokens can be listed. Uniswap takes another route. It is a decentralized exchange (DEX) protocol made of smart contracts on public blockchains. Anyone with a self-custody wallet can trade, and anyone can create a pool for a token pair.

Because it is non-custodial, Uniswap never holds your assets. There is no registration and no login. You sign each transaction in your own wallet, and the protocol does the rest.

The protocol is developed by Uniswap Labs, a company that also builds the official interfaces covered later on this page.

Inside a Uniswap Pool

The automated market maker

Uniswap is an automated market maker (AMM). Rather than an order book, each token pair has a pool holding reserves of both tokens. A formula sets the price based on the ratio of those reserves.

Picture a pool holding ETH and DAI. When you buy DAI with ETH, you add ETH to the pool and remove DAI. ETH becomes more plentiful in the pool and DAI scarcer, so the next buyer of DAI pays slightly more. That is price impact, and it is bigger when your trade is large relative to the pool.

Liquidity providers

Pools are funded by liquidity providers (LPs), users who deposit both tokens of a pair. Every swap pays a pool fee, and LPs share those fees in proportion to their liquidity.

LPs face a risk called impermanent loss: if the prices of the two tokens drift apart, the position can end up worth less than if the LP had simply held the tokens. Fees may or may not make up the difference.

How the versions changed pools

• v2: liquidity covers every possible price. Simple, but much of the capital sits idle.
• v3: concentrated liquidity lets LPs choose a price range, so their capital works harder while the price stays in range.
• v4: launched in January 2025, adds hooks, plug-in contracts that let a pool run custom logic at points such as before or after a swap.

All three can coexist. When you swap, the app’s routing searches across pools and versions to find a good price.

Where Uniswap Runs and What UNI Does

Uniswap launched on Ethereum and has since expanded to many other networks: Arbitrum, Base, Optimism, Polygon, BNB Chain, Avalanche, Unichain (Uniswap’s own layer 2) and more. Each network has separate pools and separate gas fees. A token on Base is not the same asset as its namesake on Polygon, so pick your network deliberately.

UNI is Uniswap’s governance token. It lets holders participate in protocol governance by voting or delegating. You can trade on Uniswap without owning any UNI.

What a Swap Really Costs

Every swap has a few cost layers. The app shows all of them before you confirm.

Approvals

To sell an ERC-20 token, you first grant permission through an approval transaction or a signed permit. It’s usually a one-time step per token. Limited approvals are safer than unlimited ones.

The Two Official Uniswap Apps

Uniswap Labs offers a browser-based trading interface and a self-custody wallet. They solve different problems.

Understanding the difference

The Web App is a window onto the protocol. Whatever wallet you connect does the signing and keeps the keys.

The Uniswap Wallet is that wallet. On phones, it’s listed as “Uniswap: Crypto & NFT Wallet” in the App Store and is also on Google Play. On desktop, the Uniswap Extension sits in the Chrome Web Store under the publisher “Universal Navigation Inc”, which is Uniswap Labs’ legal entity.

Picking one, or both

If your funds already live in another wallet, the Web App is all you need. If you want a single app that holds tokens and swaps them, use the Uniswap Wallet. You can also combine them: connect the Uniswap Wallet to app.uniswap.org to open liquidity positions or set limit orders.

Step-by-Step: Swapping ETH for DAI on Base

This example uses the Web App on Base, a lower-cost layer 2 network.

1. Open the genuine exchange link

   Open app.uniswap.org from your bookmark or by typing it. Confirm the exact domain.

2. Connect your wallet

   Connect a wallet through the “Connect” button and accept the connection in your wallet.

3. Switch to Base network

   Choose Base in the network menu. Check that your wallet is on Base as well.

4. Select the token pair

   Set the pair: ETH as the token you sell, DAI as the token you buy. If you search for DAI, check the contract address against a reliable source to avoid lookalike tokens.

5. Enter amount

   Type the amount of ETH. Keep a little ETH left over for gas.

6. Review trade quote

   Inspect the quote: expected DAI, price impact, pool fee, network cost, any interface fee and the slippage setting.

7. Approval verification

   Skip or complete approval: selling native ETH normally needs no approval. If you were selling DAI instead, you’d approve it first, ideally with a limited amount.

8. Confirm in your wallet

   Confirm in your wallet after reading the transaction details.

9. Settlement and activity

   Watch it settle in the app’s activity panel or your wallet history.

Staying Safe While You Learn

Uniswap’s contracts are open, but the ecosystem around them attracts scammers. Keep these defenses in place:

• Use only the official domains: uniswap.org, app.uniswap.org, support.uniswap.org and developers.uniswap.org/docs. The official X account is @Uniswap and the support email is [email protected].
• Ignore sponsored search ads and links in DMs: Lookalike domains often add hyphens, extra words or a strange ending.
• Treat “claim your UNI airdrop” pages as phishing. Uniswap does not run random reward airdrops through third-party forms.
• Read signature requests: Drainer sites ask for permits or “setApprovalForAll” to empty wallets.
• Watch for address poisoning: always copy addresses from your own records, not from recent transaction history.
• Revoke old approvals with a tool such as revoke.cash.
• Consider a hardware wallet for larger amounts.