UniSwap is a protocol that allows traders to swap Ethereum ERC20 tokens without using an order book . The swap rate is based on the demand for both tokens and the balances of the swapping pair. Traditional markets heavily rely on liquidity for their success.
Read moreHow are Uniswap fees calculated?
Swapping fees are immediately deposited into liquidity reserves. This increases the value of liquidity tokens, functioning as a payout to all liquidity providers proportional to their share of the pool. Fees are collected by burning liquidity tokens to remove a proportional share of the underlying reserves .
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