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Decentralized Exchange: The Uniswap Automated Market Maker

Author

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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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    Cited by:

    1. Chu, Gang & Dowling, Michael & Li, Xiao, 2026. "Impermanent loss in cryptocurrency," Journal of International Money and Finance, Elsevier, vol. 160(C).
    2. Dion Bongaerts & Thomas Lambert & Daniel Liebau & Peter Roosenboom, 2025. "Vote Delegation in DeFi Governance," Papers 2503.11940, arXiv.org.
    3. Carol Alexander & Xi Chen & Jun Deng & Qi Fu, 2025. "Price Discovery and Efficiency in Uniswap Liquidity Pools," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 45(8), pages 1023-1048, August.
    4. Nadler, Matthias & Schuler, Katrin & Schär, Fabian, 2026. "Blockchain price oracles: Accuracy and violation recovery," Journal of Corporate Finance, Elsevier, vol. 96(C).
    5. Chengqi Zang & Zhenghui Wang & Weitong Zhang, 2026. "A Dynamic Equilibrium Model for Automated Market Makers," Papers 2603.08603, arXiv.org.
    6. Castillo León, Jaime & Lehar, Alfred, 2026. "What data have told us about decentralized finance," Journal of Corporate Finance, Elsevier, vol. 96(C).
    7. Althea Sterrett & Austin Adams, 2025. "A Microstructure Analysis of Coupling in CFMMs," Papers 2510.06095, arXiv.org.
    8. Xue Dong He & Chen Yang & Yutian Zhou, 2025. "Arbitrage on Decentralized Exchanges," Papers 2507.08302, arXiv.org, revised Feb 2026.
    9. Philippe Bergault & S'ebastien Bieber & Leandro S'anchez-Betancourt, 2025. "Optimal Exit Time for Liquidity Providers in Automated Market Makers," Papers 2509.06510, arXiv.org, revised Oct 2025.
    10. Joel Hasbrouck & Julian Ma & Fahad Saleh & Caspar Schwarz-Schilling, 2026. "Market Inefficiency in Cryptoasset Markets," Papers 2602.20771, arXiv.org, revised Mar 2026.
    11. Martin Angerer & Marius Gramlich & Michael Hanke, 2025. "Order Book Liquidity on Crypto Exchanges," JRFM, MDPI, vol. 18(3), pages 1-29, February.
    12. Grigoriy Korolev, 2026. "Liquidity provider position analysis and pricing in automated market making systems," Digital Finance, Springer, vol. 8(1), pages 1-28, March.
    13. Mengzhong Ma & Te Bao & Yonggang Wen, 2026. "One Rising Ship Sinks Other Ships: Cross-Chain Negative Spillovers in Crypto Markets," Papers 2602.23762, arXiv.org.

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