Uniswap Liquidity Pools
How Uniswap replaced professional market makers with liquidity pools anyone can create — proving that capital allocation beats labour in decentralised finance.
Uniswap is a decentralized exchange. No order book, no market maker. Trading happens against liquidity pools. Imagine a pool with $1 million of earth and $1 million of USDC. If you buy ETH with USDC, you add USDC to the pool and remove ETH. Price adjusts mathematically. More USDC means ETH is rarer, so ETH price goes up. The pool creator earns a fee on every trade. 0.3%. This seems terrible compared to market makers earning 1-5% with zero risk. Uniswap liquidity providers have infinite risk. ETH could crash. They could experience impermanent loss, yet billions poured in. Liquidity providers realized something. Uniswap is not a job. It's a capital allocation decision. By providing liquidity, you're betting on trading volume and token price.
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