The Uniswap ecosystem includes three types of users:
- Liquidity Providers (LPs): People who provide their crypto assets to help with trading.
- Traders: People who swap one token for another.
- Developers: People who work with Uniswap smart contracts to power new and exciting experiences.
In total, interactions between these classes create a positive feedback loop. They are the fuel that our digital economies need to define a common language. This common language allows users to pool and trade tokens.
Let’s dig into these users a little deeper!
Liquidity providers, or LPs, provide ERC-20 tokens to Uniswap liquidity pools. Large pools generate 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 fee on every trade in the pool, split pro rata across LPs of that pool.
Different types of LP:
- Passive LPs: token holders who wish to invest their assets to accumulate trading fees. This can generate passive income.
- Professional LPs: focus on market making as their primary strategy. They develop tools and ways of tracking their liquidity positions across different projects.
- DeFi Pioneers: explore complex liquidity provision interactions.
- Examples include incentivized liquidity, liquidity as collateral, and other experimental strategies. The Uniswap protocol is perfect for projects to experiment with these kinds of ideas.
- Token Projects: sometimes choose to become LPs to create a liquid market for their token. This allows users a simple way to buy and sell tokens.
There are a several categories of traders in the protocol ecosystem:
- Speculators: individuals who use various community tools and products to swap tokens.
- Arbitrage Bots: These are our profit seeking bots! They compare prices across different platforms to find any competitive advantage. These bots actually help keep prices fair and equal.
- dapp Users: Individuals who buy tokens from the Uniswap protocol. They later trade these tokens in other applications on the Ethereum network.
- Smart contracts: execute trades on the protocol by implementing swap functionality. These products include 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 build apps and services on top of the Uniswap protocol. There are too many to count across the Ethereum ecosystem, but some examples include:
- Uniswap is 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 can integrate swapping and liquidity functionality as a core offering.
- DEX aggregators pull liquidity from several liquidity protocols. This allows them to offer traders the best available prices. The Uniswap protocol is the biggest single decentralized liquidity source for these projects.
- Smart contract developers can invent new tools and experiment with other various ideas. Examples include projects like Unisocks or Zora, but the possibilities are limitless!
Many members of the Uniswap ecosystem take part in more than one of these roles. You can be a Liquidity Provider, Trader, and a Developer all at the same time!