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Decentralized Exchange: The Uniswap Automated Market Maker

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  • ALFRED LEHAR
  • CHRISTINE PARLOUR

Abstract

Uniswap is a system of smart contracts on the Ethereum blockchain and is the largest decentralized exchange with a liquidity balance worth up to 4 billion USD and daily trading volume of up to 7 billion USD. It is a new model of liquidity provision, so‐called automated market making. For this new market form, we characterize equilibrium in the liquidity pools. We collect all 95.8 million Uniswap interactions and compare this automated market maker (AMM) to a centralized limit order book. We document absence of long‐lived arbitrage opportunities, and show conditions under which the AMM dominates a limit order market.

Suggested Citation

  • Alfred Lehar & Christine Parlour, 2025. "Decentralized Exchange: The Uniswap Automated Market Maker," Journal of Finance, American Finance Association, vol. 80(1), pages 321-374, February.
    • Handle: RePEc:bla:jfinan:v:80:y:2025:i:1:p:321-374
    DOI: 10.1111/jofi.13405
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