The Uniswap ecosystem includes three types of users:

  • Liquidity Providers (LPs): individuals or entities who contribute ERC-20 tokens to common liquidity pools.

  • Traders: individuals or entities who swap one token for another.

  • Developers: individuals or entities who integrate with Uniswap protocol smart contracts to power new and exciting experiences.

In total, interactions between these classes create a positive feedback loop, fueling digital economies by defining a common language through which tokens can be pooled, traded and used.

Liquidity Providers

Liquidity providers, or LPs, provide ERC-20 tokens to Uniswap liquidity pools. Large pools facilitate higher-volume trades with better pricing than smaller pools. Hence LPs play the very important role of providing liquidity for traders. In return, LPs earn a 0.30% fee on every trade in the pool, split pro rata across LPs of that pool.

LPs are not a homogenous group:

  • Passive LPs are token holders who wish to passively invest their assets to accumulate trading fees.

  • Professional LPs are focused on market making as their primary strategy. They usually develop custom tools and ways of tracking their liquidity positions across different DeFi projects.

  • Token projects sometimes choose to become LPs to create a liquid marketplace for their token. This allows tokens to be bought and sold more easily, and unlocks interoperability with other DeFi projects through the Uniswap protocol.

  • Finally, some DeFi pioneers are exploring complex liquidity provision interactions like incentivized liquidity, liquidity as collateral, and other experimental strategies. The Uniswap protocol is perfect for projects to experiment with these kinds of ideas.

Traders

There are a several categories of traders in the protocol ecosystem:

  • Speculators use a variety of community built tools and products to swap tokens using liquidity pulled from the Uniswap protocol.

  • Arbitrage bots seek profits by comparing prices across different platforms to find an edge. (Though it might seem extractive, these bots actually help equalize prices across broader Ethereum markets and keep things fair.)

  • Dapp users buy tokens via the Uniswap protocol to later use in other applications on Ethereum.

  • Smart contracts that execute trades on the protocol by implementing swap functionality (from products like DEX aggregators to custom Solidity scripts).

In all cases, trades are subject to the same flat fee for trading on the protocol. Each is important for increasing the accuracy of prices and incentivizing liquidity.

Developers

Developers build apps and services on top of the Uniswap protocol. There are too many to count across the Ethereum ecosystem, but some examples include:

  • Since the Uniswap protocol and Uniswap app are completely open-source, countless developers have launched their own front-ends to interact with the Uniswap protocol. You can find Uniswap functions in most of the major DeFi dashboard projects. There are also many Uniswap protocol tools built by the community.

  • Wallets often integrate swapping and liquidity provision functionality as a core offering of their product.

  • DEX (decentralized exchange) aggregators pull liquidity from many liquidity protocols to offer traders the best prices but splitting their trades. The Uniswap protocol is the biggest single decentralized liquidity source for these projects.

  • Smart contract developers use the suite of functions available to invent new DeFi tools and other various experimental ideas. See projects like Unisocks or Zora, among many, many others.

Many members of the Uniswap ecosystem participate in more than one of these roles. You can be a Liquidity Provider, Trader, and a Developer all at the same time!

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