FAQ About Uniswap
What is Uniswap and how does it differ from centralized exchanges?
Uniswap is a decentralized exchange protocol built on Ethereum that uses automated market makers instead of order books. Unlike centralized exchanges, Uniswap operates entirely through smart contracts without requiring user registration, KYC verification, or asset custody. Trades occur directly between user wallets and liquidity pools, providing greater privacy, security, and control over your funds compared to centralized alternatives.
How do I connect my wallet to Uniswap?
To connect your wallet to Uniswap, visit app.uniswap.org and click the "Connect Wallet" button in the top right corner. Select your wallet provider (such as MetaMask, WalletConnect, or Coinbase Wallet) from the list of options. Follow the prompts in your wallet to authorize the connection. Once connected, your wallet address will appear in the interface, and you can start trading by selecting tokens and confirming transactions.
What's the difference between Uniswap V2 and V3?
The primary difference between Uniswap V2 and V3 is concentrated liquidity. In V2, liquidity is distributed evenly across all price ranges (0 to infinity), while V3 allows liquidity providers to concentrate their capital in specific price ranges. V3 also offers multiple fee tiers (0.05%, 0.3%, 1%) compared to V2's fixed 0.3% fee, and represents positions as NFTs rather than fungible LP tokens. While V3 offers much greater capital efficiency, it's also more complex to use effectively.
How do I provide liquidity on Uniswap?
To provide liquidity on Uniswap V2, navigate to the "Pool" section in the app, select "Add Liquidity," choose your token pair, and deposit equal values of both tokens. You'll receive LP tokens representing your share of the pool. For V3, the process is similar but includes additional steps to set your fee tier and price range. Remember that providing liquidity carries risks including impermanent loss, which occurs when token prices change from your initial deposit ratio.
What is impermanent loss and how does it affect liquidity providers?
Impermanent loss occurs when the price ratio of tokens in a pool changes compared to when you deposited them. For example, if you provide ETH and USDC when ETH is $2,000, and later ETH rises to $3,000, you would have been better off just holding the tokens separately rather than providing liquidity. This loss is "impermanent" because it can decrease if prices return to their original ratio, but becomes permanent when you withdraw your liquidity. In V3, concentrated liquidity can amplify impermanent loss within specific ranges.
Are there fees for using Uniswap?
Yes, there are two types of fees when using Uniswap: protocol fees and network fees. Protocol fees are a percentage of your trade amount (0.3% in V2, or 0.05%, 0.3%, or 1% in V3 depending on the pool) and go to liquidity providers. Network fees (gas fees) are paid to Ethereum validators for processing your transaction and vary based on network congestion. If you're using Uniswap on a Layer 2 or alternate chain, network fees are significantly lower.
Is Uniswap safe to use?
Uniswap's smart contracts have been extensively audited and are generally considered secure. However, using any DeFi protocol involves inherent risks including smart contract vulnerabilities, impermanent loss for liquidity providers, and general market volatility. Additional risks include scam tokens, front-running attacks, and user errors. You can minimize these risks by using official interfaces, verifying token addresses, setting appropriate slippage tolerance, and starting with smaller amounts until you're comfortable with the process.
Can I use Uniswap in any country?
The Uniswap protocol is accessible globally as it operates on the Ethereum blockchain without requiring registration or identity verification. However, the official Uniswap interface ( app.uniswap.org ) implements geo-restrictions that block access from certain regions, including sanctioned countries and some U.S. territories for specific tokens. Users in restricted regions may need to use alternative front-ends or interfaces while ensuring compliance with their local regulations.