Uniswap V3 Explained - Concentrated Liquidity, Impermanent Loss, Slippage
Uniswap protocol is an ETH native smart contract system which enables swapping of pairs of ERC20<>ERC20 and ERC20<>ETH.
Uniswap uses automated market maker (AMM) algorithm to execute trades. Users provide liquidity in pairs of tokens to create a liquidity pool. Trades are executed by depositing the offered token in the pool and withdrawing the asked token from the pool. A swap fee is applied to the amount of ask token which is distributed to the liquidity providers (LPs).
Uniswap V3 is the latest version of the protocol which has introduced concentrated liquidity and many other concepts. In V3 there are several fee tiers available based on the risk of providing liquidity. The fees is collected in the 2 tokens of the pool and is not invested back into the pool.
UNI is a governance token for the Uniswap protocol. UNI token holders might be eligible for protocol fee in future. The current protocol fee is 0%. UNI token holders can change the protocol fee.
