Uniswap v2: What It Is, How It Works, and Why It Still Matters

When you trade crypto without a middleman, you’re using a Uniswap v2, a decentralized exchange built on Ethereum that lets users swap tokens directly using smart contracts. Also known as an automated market maker, it removed the need for order books and centralized custody—making trading open to anyone with an Ethereum wallet. Before Uniswap v2, swapping tokens meant trusting a platform like Binance or Coinbase to hold your funds. Uniswap v2 changed that by letting you trade directly from your wallet, using a simple formula: the product of two token reserves always stays constant. That’s it. No order matching. No human intervention. Just code.

This system made Ethereum, the blockchain that hosts Uniswap v2 and thousands of other DeFi apps the backbone of decentralized finance. It didn’t just enable trading—it created a new financial layer. Liquidity providers could earn fees by depositing pairs like ETH/USDC, and developers could build on top of it without asking permission. That’s why you’ll see Uniswap v2 referenced in posts about decentralized exchange, a type of crypto platform that runs on blockchain and doesn’t require users to deposit funds even today. It’s the blueprint. Even newer DEXs like Aerodrome Finance or Libre Swap are built on lessons learned from Uniswap v2’s design.

But Uniswap v2 isn’t perfect. It’s slow on Ethereum, expensive during peak times, and doesn’t support cross-chain swaps. That’s why many users moved to Layer 2s or newer chains. Still, it’s the reason you can now trade obscure tokens with just a few clicks. You’ll find posts here that compare it to other DEXs, explain how liquidity pools work, and warn about risks like impermanent loss—all rooted in the same foundation Uniswap v2 built. Whether you’re trading ETH for DAI or checking why a token’s price dropped after a liquidity withdrawal, you’re interacting with the legacy of Uniswap v2. What follows are real-world examples, comparisons, and warnings—all shaped by this system.