Uniswap is a decentralized cryptocurrency exchange (DEX) that operates on the Ethereum blockchain using a set of smart contracts. It allows users to trade various ERC-20 tokens directly from their Ethereum wallets without the need for an intermediary.
Uniswap runs on two main smart contracts - an "Exchange" contract that facilitates all token swaps or trades, and a "Factory" contract that is used to add new tokens to the platform. The exchange contract uses an automated liquidity protocol to solve the liquidity problem faced by centralized exchanges. This protocol incentivizes users to provide liquidity by depositing cryptocurrency pairs into liquidity pools, and in return they earn a portion of the trading fees generated.
When a user wants to trade on Uniswap, they interact with the exchange contract to swap one token for another. The contract uses an algorithm to determine the exchange rate based on the relative supply of the two tokens in the liquidity pool. This system allows for a completely decentralized trading experience, as there is no central authority controlling the order book or prices.
Uniswap also has its own governance token called UNI, which allows holders to vote on changes and improvements to the protocol. The UNI token was launched in 2020 as a way to incentivize users and prevent them from migrating to competing DEXs like SushiSwap.