UniSwap exchange works on the principle of liquidity pools that replace order books. A user who locks his coins in one of the exchange’s smart contracts becomes a liquidity provider. Blocked tokens are pooled into liquidity pools. Anyone can open a pool with a new cryptocurrency
Exchange users can conduct exchange transactions (swaps) between any tokens present on the exchange. Each transaction is charged a fixed commission of 0.3%, which is distributed between liquidity providers according to their share in the pool. Liquidity provider can withdraw all of its funds from the pool, but then it will cease to receive income from commissions.
Despite the implemented system UniSwap was repeatedly criticized for the lack of decentralization.
Since the launch the commission rate has not changed, although the emergence of profitable farming increased competition with other DeFi-applications.
Thus, the UniSwap exchange works like this:
- First, a user who locks their coins into one of the smart contracts becomes a liquidity provider;
- Then these blocked tokens are pooled into liquidity pools;
- Then the pool with the new cryptocurrency can be opened by any user.
UniSwap is different from SushiSwap:
Rewards for liquidity pools. Liquidity providers get a percentage of commissions for transactions: the more liquidity presented, the more commissions will be received from the pool. As a result, big players such as cryptocurrency exchanges or funds get the bulk of these commissions. SushiSwap issuance works differently. It is arranged in such a way that the first users of the protocol receive SUSHI 10 times more than those who came later;
The number of DEX networks. UniSwap has several blockchains (Ethereum, Polygon, Optimism and Arbitrum), while SushiSwap has more than 16;
Possible ways of trading. In the UniSwap network there are only two functions: liquidity pool and AMM (Automated Market Maker) pharming – these are smart contracts that have a mathematical function that determines the value of an asset based on the number of assets in the liquidity pool. The SushiSwap network has more features: leverage (Kashi), stacking (Sushi Bar), token storage (BentoBox) and IDO launch panel (MISO).