Decrypt’s Art, Fashion, and Entertainment Hub. Discover SCENEThe decentralized finance (DeFi) ecosystem uses non-custodial, autonomous financial products to replace centralized middlemen in financial applications such as loans, insurance, and derivatives.Uniswap is an example of one of the core products in the DeFi ecosystem, the decentralized crypto exchange, or DEX.DEXs aim to solve many of the problems of centralized exchanges, including the risk of hacking, mismanagement, and arbitrary fees. However, decentralized exchanges have their own problems, mainly lack of liquidity—which means a lack of money sloshing around an exchange that makes trading faster and more efficient.Uniswap was designed to try and solve decentralized exchanges' liquidity problem, by allowing the exchange to swap tokens without relying on buyers and sellers creating that liquidity.Below we explore how Uniswap works—and how it became one of the leading decentralized exchanges built on Ethereum.What is Uniswap?Uniswap is an Ethereum protocol that allows users to swap tokens without a middleman.In other words, unlike most exchanges, which match buyers and sellers to determine prices and execute trades, Uniswap uses a simple math equation and pools of tokens called liquidity pools to do the same job.The DEX started on the Ethereum mainnet, but has since branched its offerings to more than a dozen EVM-compatible blockchains including Avalanche and BNB Chain, plus popular Ethereum layer-2 networks like Base, Arbitrum, and Optimism.How does Uniswap work?Uniswap differentiates itself from major centralized exchanges like Coinbase and Binance by acting as an automated liquidity protocol or automated market maker (AMM).In other words, the platform allows users to swap in and out of tokens without relying on third parties, instead using liquidity pools of tokens to make trades.For example, if you wanted to make an exchange for an altcoin called Durian Token, you could launch a new Uniswap smart contract for Durian Token and create a liquidity pool with—for example—$10 worth of Durian Token and $10 worth of ETH.With this liquidity pool created, a new user could then come and swap in either direction subject to the liquidity.Where Uniswap differs is that instead of connecting buyers and sellers to determine the price of a token, Uniswap uses a constant equation: x * y = k.In the equation, x and y represent the quantity of ETH and ERC-20 tokens available in a liquidity pool and k is a constant value. This equation uses the balance between the ETH and ERC-20 tokens—and supply and demand—to determine the price of a particular token. Whenever someone buys Durian Token with ETH, the supply of Durian Token decreases while the supply of ETH increases; as such, the price of Durian Token goes up.As a result, the price of tokens on Uniswap can only change if trades occur. Essentially, what Uniswap is doing is balancing out the value of tokens, and the swapping of them based on how much people want to buy and sell them.Uniswap V2 and V3Though Uniswap launched back in November 2018, it wasn't until a couple of years later that the protocol began to see significant traction.The release of Uniswap V2 in May 2020 brought a major upgrade, allowing for direct ERC-20 to ERC-20 token swaps, cutting Wrapped Ether (WETH) out of the equation where possible

Cryptocurrency marketplace OpenSea could be the target of a regulatory investigation.Devin Finzer, the company’s CEO, posted on social platform X Wednesday (Aug. 28) that the Securities and Exchange Commission (SEC) issued a Wells notice against OpenSea.Wells notices are not formal charges or lawsuits but traditionally one of the final steps before the SEC files charges against a company. They provide a regulatory argument and give the company a chance to respond to the regulator’s allegations.In this case, Finzer wrote, the SEC is alleging that the non-fungible tokens (NFTs) sold on its marketplace count as securities.“We’re shocked the SEC would make such a sweeping move against creators and artists,” Finzer wrote in the post. “But we’re ready to stand up and fight.”OpenSea has received a Wells notice from the SEC threatening to sue us because they believe NFTs on our platform are securities. We’re shocked the SEC would make such a sweeping move against creators and artists. But we’re ready to stand up and fight