Uniswap (UNI) Research Report
Project Name: Uniswap
Tag: $UNI
Type: DEX

Introduction

Uniswap is a decentralized exchange protocol built on Ethereum. It allows trades to be completed automatically through liquidity pools, without the need for order books and centralized intermediaries.

Core Mechanism

Uniswap abandons the traditional architecture of digital trading platforms and instead uses the “Constant Product Automated Market Maker Model (CPAMM).” This model is a variant of the automated market maker (AMM) model, providing a unique mechanism for cryptocurrency trading pairs without the need for traditional counterparts.
In CPAMM, trading pairs exist as separate liquidity pools. Anyone can provide liquidity by depositing two assets at a predetermined ratio. To maintain the balance of asset ratios, Uniswap sets a simple equation, x * y = k, where x and y represent the value of two different assets in the pool, and k is a constant. This formula ensures that the product of the prices of Asset A and Asset B always equals the same number, thus maintaining market equilibrium.

Version Iterations

V1

Released in November 2018, V1 used a simple AMM model, allowing users to trade directly with smart contracts instead of a traditional buyer and seller market. Since it only provided conversions between tokens and native tokens, cost issues were inevitable:

• Transaction Costs: Users needed to complete two transactions to convert DAI and USDT—first swapping DAI for ETH, then swapping ETH for USDT.
• Slippage Costs: These two transactions did not yet provide atomic transaction capabilities, requiring users to bear slippage costs separately on the chain.

V2

V2 further optimized V1’s liquidity pool model, using a factory deployment model of smart contracts that allowed liquidity pools to be built between tokens. It also realized customizable chain trading paths and built-in price oracles to help other applications obtain cumulative price information for token pairs, preventing price manipulation.

V3

To solve the issues of capital efficiency and impermanent loss in V2, V3 introduced Concentrated Liquidity within a defined range, reducing the situation of ineffective capital storage in certain areas. Liquidity providers (LPs) could set the price range for the liquidity pools they inject into, making liquidity more concentrated in the price range corresponding to most trading activities. V3 also provided different fee tiers (0.05%, 0.30%, 1.00%), allowing liquidity providers to choose different fees. Additionally, each liquidity position was represented as an NFT, making liquidity management and transfer more flexible.

V4

The core innovation of V4 is the Hook, a system optimization aimed more at developers. Through the Hook mechanism, specific contracts can be run at various points in the lifecycle of a trading pair, further unlocking the value of V2 and V3 liquidity. Each liquidity pool has a lifecycle from creation to addition, removal, or adjustment. Hook allows developers to add code that executes specified operations at critical points throughout the liquidity pool lifecycle. For example, adding Hooks can enable native dynamic fees, add on-chain limit orders, or act as a Time-Weighted Average Market Maker (TWAMM), gradually spreading out large orders to minimize price impact. Customization of liquidity pools through Hooks can be limitless, from using multiple on-chain oracles to depositing unused liquidity into lending protocols.

Key Metrics

Tokenomics

The total token supply of 1,000,000,000 is distributed over four years:

1. Community Members: 60% of the tokens, with 15% immediately released as a retrospective airdrop
2. Team and Future Employees: 21.266%
3. Investors: 18.044%
4. Advisors: 0.69%
5. Ongoing Inflation: After the initial four-year period, the UNI ecosystem will introduce a 2% annual inflation rate to incentivize continued participation and governance.