Trade Tokens

In Uniswap, there is a separate exchange contract for each ERC20 token. These exchanges hold reserves of both ETH and their associated ERC20. Instead of waiting to be matched in an order-book, users can make trades against the reserves at any time. Reserves are pooled between a decentralized network of liquidity providers who collect fees on every trade.

Pricing is automatic, based on the x * y = k market making formula which automatically adjusts prices based off the relative sizes of the two reserves and the size of the incoming trade. Since all tokens share ETH as a common pair, it is used as an intermediary asset for direct trading between any ERC20 ⇄ ERC20 pair.

ETH ⇄ ERC20 Calculations

The variables needed to determine price when trading between ETH and ERC20 tokens is:

• ETH reserve size of the ERC20 exchange
• ERC20 reserve size of the ERC20 exchange
• Amount sold (input) or amount bought (output)

Amount Bought (sell order)

For sell orders (exact input), the amount bought (output) is calculated:

// Sell ETH for ERC20
const inputAmount = userInputEthValue
const inputReserve = web3.eth.getBalance(exchangeAddress)
const outputReserve = tokenContract.methods.balanceOf(exchangeAddress).call()

// Sell ERC20 for ETH
const inputAmount = userInputTokenValue
const inputReserve = tokenContract.methods.balanceOf(exchangeAddress).call()
const outputReserve = web3.eth.getBalance(exchangeAddress)

// Output amount bought
const numerator = inputAmount * outputReserve * 997
const denominator = inputReserve * 1000 + inputAmount * 997
const outputAmount = numerator / denominator
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Amount Sold (buy order)

For buy orders (exact output), the cost (input) is calculated:

// Buy ERC20 with ETH
const outputAmount = userInputTokenValue
const inputReserve = web3.eth.getBalance(exchangeAddress)
const outputReserve = tokenContract.methods.balanceOf(exchangeAddress).call()

// Buy ETH with ERC20
const outputAmount = userInputEthValue
const inputReserve = tokenContract.methods.balanceOf(exchangeAddress).call()
const outputReserve = web3.eth.getBalance(exchangeAddress)

// Cost
const numerator = outputAmount * inputReserve * 1000
const denominator = (outputReserve - outputAmount) * 997
const inputAmount = numerator / denominator + 1
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Liquidity Provider Fee

There is a 0.3% liquidity provider fee built into the price formula. This can be calculated:

fee = inputAmount * 0.003
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Exchange Rate

The exchange rate is simply the output amount divided by the input amount.

const rate = outputAmount / inputAmount
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ERC20 ⇄ ERC20 Calculations

The variables needed to determine price when trading between two ERC20 tokens is:

• ETH reserve size of the input ERC20 exchange
• ERC20 reserve size of the input ERC20 exchange
• ETH reserve size of the output ERC20 exchange
• ERC20 reserve size of the output ERC20 exchange
• Amount sold (input) or amount bought (output)

Amount Bought (sell order)

For sell orders (exact input), the amount bought (output) is calculated:

// TokenA (ERC20) to ETH conversion
const inputAmountA = userInputTokenAValue
const inputReserveA = tokenContractA.methods.balanceOf(exchangeAddressA).call()
const outputReserveA = web3.eth.getBalance(exchangeAddressA)

const numeratorA = inputAmountA * outputReserveA * 997
const denominatorA = inputReserveA * 1000 + inputAmountA * 997
const outputAmountA = numeratorA / denominatorA

// ETH to TokenB conversion
const inputAmountB = outputAmountA
const inputReserveB = web3.eth.getBalance(exchangeAddressB)
const outputReserveB = tokenContract.methods.balanceOf(exchangeAddressB).call()

const numeratorB = inputAmountB * outputReserveB * 997
const denominatorB = inputReserveB * 1000 + inputAmountB * 997
const outputAmountB = numeratorB / denominatorB
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Amount Sold (buy order)

For buy orders (exact output), the cost (input) is calculated:

// Buy TokenB with ETH
const outputAmountB = userInputEthValue
const inputReserveB = web3.eth.getBalance(exchangeAddressB)
const outputReserveB = tokenContractB.methods.balanceOf(exchangeAddressB).call()

// Cost
const numeratorB = outputAmountB * inputReserveB * 1000
const denominatorB = (outputReserveB - outputAmountB) * 997
const inputAmountB = numeratorB / denominatorB + 1

// Buy ETH with TokenA
const outputAmountA = userInputEthValue
const inputReserveA = tokenContractA.methods.balanceOf(exchangeAddressA).call()
const outputReserveA = web3.eth.getBalance(exchangeAddressA)

// Cost
const numeratorA = outputAmountA * inputReserveA * 1000
const denominatorA = (outputReserveA - outputAmountA) * 997
const inputAmountA = numeratorA / denominatorA + 1
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Liquidity Provider Fee

There is a 0.30% liquidity provider fee to swap from TokenA to ETH on the input exchange. There is another 0.3% liquidity provider fee to swap the remaining ETH to TokenB.

const exchangeAFee = inputAmountA * 0.003
const exchangeBFee = inputAmountB * 0.003
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Since users only inputs Token A, it can be represented to them as:

const combinedFee = inputAmountA * 0.00591
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Exchange Rate

The exchange rate is simply the output amount divided by the input amount.

const rate = outputAmountB / inputAmountA
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Deadlines

Many Uniswap functions include a transaction deadline that sets a time after which a transaction can no longer be executed. This limits miners holding signed transactions for extended durations and executing them based off market movements. It also reduces uncertainty around transactions that take a long time to execute due to issues with gas price.

Deadlines are calculated by adding the desired amount of time (in seconds) to the latest Ethereum block timestamp.

web3.eth.getBlock('latest', (error, block) => {
  deadline = block.timestamp + 300 // transaction expires in 300 seconds (5 minutes)
})
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Recipients

Uniswap allows traders to swap tokens and transfer the output to a new recipient address. This allows for a type of payment where the payer sends one token and the payee receives another.

ETH ⇄ ERC20 Trades

Coming soon…

ERC20 ⇄ ERC20 Trades

Coming soon…

Custom Pools

Coming soon…