What is Uniswap? UNI Token, V3 Concentrated Liquidity and V4 Hooks Explained

Uniswap is a decentralised exchange (DEX) and automated market maker (AMM) protocol built on Ethereum, and the largest DEX by cumulative trading volume in DeFi history. Created by Hayden Adams and launched on 2 November 2018, Uniswap introduced a radically simple model: any two ERC-20 tokens can be pooled together by users who become liquidity providers, and any user can trade those tokens directly from their wallet — no order book, no KYC, no intermediary.

As of May 2026, Uniswap has processed over $2.5 trillion in cumulative trading volume and is deployed across Ethereum mainnet, Arbitrum, Optimism, Polygon, Base, Avalanche, BNB Chain, and over 10 additional networks. It remains the most-forked DeFi protocol in existence and the primary liquidity venue for newly launched tokens on Ethereum.

How Uniswap Works: The Constant Product AMM

Uniswap's original AMM model — still operating as Uniswap V2 — uses the constant product formula: x × y = k, where x and y are the reserves of two tokens in a pool, and k is a constant that must be maintained after every trade. When a user buys token A with token B, they add token B to the pool and remove token A, causing the price to adjust so that x × y still equals k.

This model is elegant: any token pair can be listed without permission, price discovery happens automatically, and the pool never runs completely out of either token. Liquidity providers deposit equal values of both tokens and earn a 0.3% fee on every trade proportional to their share of the pool.

The main limitation of V2 is capital inefficiency. Because liquidity is distributed uniformly across all possible prices — from zero to infinity — the vast majority of deposited capital sits unused in price ranges where virtually no trading occurs.

Uniswap V3: Concentrated Liquidity Explained

Uniswap V3, launched in May 2021, introduced concentrated liquidity — the most significant AMM innovation since the original constant product formula. In V3, liquidity providers no longer supply liquidity across the full price range. Instead, they choose a specific price range within which their capital will be active and earning fees.

A liquidity provider who expects ETH to trade between $2,000 and $4,000 can concentrate all their capital within that range, earning fees only when ETH trades within those bounds — but earning dramatically more fees per dollar deposited than a V2 LP with the same capital spread across all prices. For stablecoin pairs (e.g. USDC/USDT) where virtually all trades occur within a 1% price band, concentrated liquidity can deliver capital efficiency up to 4,000× higher than V2.

V3 also introduced multiple fee tiers: 0.01% for near-identical stablecoins, 0.05% for stable pairs, 0.3% for standard pairs, and 1% for exotic or highly volatile assets. V3 LP positions are represented as ERC-721 NFTs rather than fungible ERC-20 tokens — each NFT encodes the position's specific price range, pool, and fee tier.

The tradeoff of concentrated liquidity is active management complexity. LPs whose price ranges become 'out-of-range' as market prices move earn zero fees until the price returns. This has driven demand for active liquidity management services such as Gamma Strategies, Arrakis Finance, and Bunni Protocol.

Uniswap V4: The Hook Architecture

Uniswap V4, released in January 2025, introduces the most architecturally significant upgrade in the protocol's history: hooks. A hook is a smart contract attached to a Uniswap V4 pool that executes custom logic at defined lifecycle points — before and after swaps, before and after liquidity changes, and at pool initialisation.

Hooks allow developers to build sophisticated AMM behaviours without modifying core contracts. Examples include: dynamic fee tiers that adjust with volatility; on-chain TWAP-based limit orders; yield-bearing LP positions that auto-compound fees; keeper-triggered rebalancing; and custom oracle logic. Any developer can deploy a hook, making V4 a programmable liquidity infrastructure layer rather than a fixed DEX.

V4 also introduced a singleton architecture — all V4 pools exist within one smart contract rather than separate contracts per pool. Combined with flash accounting (temporary balances settled within a transaction), V4 is significantly more gas-efficient for multi-pool operations and composable DeFi interactions.

UNI Token and Governance

UNI is Uniswap's governance token, launched in September 2020 via a historic airdrop that distributed 400 UNI to every Ethereum address that had ever interacted with Uniswap — approximately 250,000 wallets, worth roughly $1,200 at the time and over $3,200 at UNI's peak. This airdrop became a defining event in DeFi's history of community ownership.

UNI has a total supply of 1 billion tokens. Allocation: 60% to the community and existing users, 21.51% to team members with a 4-year vesting schedule, 17.80% to investors, and 0.069% to advisors. The Uniswap DAO treasury holds over $4 billion in UNI, one of the largest DAO treasuries in DeFi.

UNI holders vote on protocol governance including fee parameters, new chain deployments, grant programs, and treasury allocations. A long-running governance debate is the 'fee switch' — a mechanism that would redirect a portion of LP trading fees to UNI token stakers — which has faced ongoing complexity around its implementation and activation.

Uniswap Across Chains and UniswapX

Uniswap V3 and V4 are deployed across Ethereum mainnet and over a dozen L2 and alternative EVM networks, including Arbitrum, Optimism, Polygon, Base, Avalanche, BNB Chain, Celo, Blast, and Scroll. Base and Arbitrum in particular handle a large share of daily volume due to their lower gas costs relative to Ethereum mainnet.

UniswapX, launched in 2023, is an off-chain order routing system where 'fillers' compete to fill user swaps at the best available price, then settle on-chain. UniswapX can aggregate liquidity across Uniswap pools and external sources, delivering better prices than direct pool swaps — particularly for large trades.

Uniswap Labs introduced a 0.15% interface fee on certain token swaps in October 2023 — separate from protocol LP fees and not controlled by governance. The Uniswap Foundation, established with a $74 million DAO grant in 2022, funds protocol development, ecosystem grants, and governance education independently of Uniswap Labs.

Frequently Asked Questions

• What is Uniswap? Uniswap is a decentralised exchange (DEX) and automated market maker (AMM) on Ethereum that allows users to swap any ERC-20 token directly from their wallets without order books, intermediaries, or KYC. It is the largest DEX by cumulative trading volume and is deployed on over 10 blockchain networks.
• How does Uniswap work? Uniswap uses liquidity pools — pairs of tokens deposited by liquidity providers. When a user swaps token A for token B, they add A to the pool and remove B, and the AMM formula automatically adjusts the price. Liquidity providers earn a fee (0.01%, 0.05%, 0.3%, or 1% depending on the pool) on every trade proportional to their share.
• What is Uniswap V3 concentrated liquidity? Concentrated liquidity lets LPs supply capital only within a chosen price range rather than across all possible prices. This makes capital far more efficient: a stablecoin pair LP can achieve up to 4,000× higher fee earnings per dollar compared to V2. V3 LP positions are ERC-721 NFTs encoding each provider's range and fee tier.
• What is Uniswap V4? Released in January 2025, Uniswap V4 introduces hooks — customisable smart contracts attached to pools that execute logic at defined lifecycle points. Hooks enable dynamic fees, on-chain limit orders, auto-compounding, and any custom AMM behaviour without modifying core contracts. V4 uses a singleton contract architecture for greater gas efficiency.
• What is the UNI token? UNI is Uniswap's governance token. Holders vote on protocol decisions including fee parameters, chain deployments, grant programs, and treasury management. UNI has a total supply of 1 billion tokens, with the Uniswap DAO treasury holding over $4 billion in UNI — one of the largest DAO treasuries in DeFi.
• What is the Uniswap fee switch? The fee switch is a governance mechanism that, if activated, would redirect a share of trading fees from liquidity providers to UNI token stakers. Uniswap's governance has debated activating it extensively. As of May 2026, it has not been broadly activated.
• Is Uniswap safe? Uniswap's core V2 and V3 contracts have been extensively audited and operated without exploits for years. V4's hook architecture introduces a new risk surface: third-party hooks can contain vulnerabilities. Users should verify any V4 pool's hook has been audited before using it with large amounts.
• What is impermanent loss on Uniswap? Impermanent loss occurs when the price ratio of two pooled tokens changes after deposit. LPs would have been better off simply holding both tokens if fees don't compensate for the divergence. V3 concentrated liquidity amplifies both fee earnings and impermanent loss within the chosen range.
• What chains is Uniswap available on? Uniswap V3 and V4 are deployed on Ethereum, Arbitrum, Optimism, Polygon, Base, Avalanche, BNB Chain, Celo, Blast, and Scroll, among others. Base and Arbitrum account for a growing share of daily volume due to lower gas costs.
• What is UniswapX? UniswapX is Uniswap's off-chain order routing system where competing fillers find the best price for user swaps, then settle on-chain. It can aggregate liquidity across Uniswap pools and external sources, delivering better prices — particularly for large trades.
• Who created Uniswap? Uniswap was created by Hayden Adams, who began the project in 2017 following a suggestion from Vitalik Buterin. The first version launched on Ethereum mainnet on 2 November 2018.
• What is the difference between Uniswap V2 and V3? V2 distributes LP capital uniformly across all prices — simple and passive. V3 lets LPs concentrate capital within chosen price ranges — more efficient but requiring active management. V3 positions are ERC-721 NFTs rather than fungible tokens, and offer multiple fee tiers.
• What happens when a Uniswap V3 position goes out of range? If the market price moves outside your V3 LP position's chosen range, your position stops earning fees and becomes entirely composed of one token. It resumes earning fees if the price returns to your range. You can add a new position at a different range to stay active.
• What is the Uniswap Foundation? The Uniswap Foundation is a non-profit entity established with a $74 million grant from the Uniswap DAO in 2022. It funds protocol development, ecosystem grants, governance tooling, and education. It operates separately from Uniswap Labs, the venture-backed company that builds the interface.
• How do I provide liquidity on Uniswap V3? Go to app.uniswap.org and connect a wallet. Select Pool → New Position, choose two tokens, a fee tier, and a price range. Deposit the required amounts of both tokens. Your position is represented as an NFT and earns fees whenever the market price is within your chosen range.