The Uniswap protocol is a decentralized trading protocol that operates on the Ethereum blockchain.

Check out this great explanation of how the Uniswap protocol works. Excerpt:

"The [Uniswap protocol] enables peer-to-peer (P2P) swaps that execute without order books or an intermediary. The Uniswap [protocol] achieves this with a liquidity pool model that uses automated smart contracts that enable prospective swappers to access user funded token reserves. The key innovation that makes the Uniswap protocol work is Automated Market Maker (AMM) technology. An AMM is a smart contract that manages the Uniswap pools that furnish the tokens to effectuate a swap. When a swap is made, the AMM algorithm determines the price based on supply and demand between tokens in these liquidity pools. When users swap with a Uniswap liquidity pool, a transaction fee of 0.3% is charged. Anyone who contributes to a Uniswap liquidity pool receives a cut of these fees proportional to their share of the entire pool. For instance, if the fees collected in a particular market equate to $100, and you provided 50% of the pool's liquidity, you receive $50. It's worth noting that no share of transaction fees is paid to Uniswap [Labs] itself; instead, profits are distributed solely among Uniswap's community of users."

If you want to learn more about the details of how liquidity pools work you might want to watch this video.

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