Uniswap V3 Review: Ethereum DEX Features, Fees & How to Trade

Quick Takeaways

• Uniswap V3 runs on Ethereum, offers concentrated liquidity and multiple fee tiers.
• TVL hovers around $4.5billion in 2025, handling roughly 60% of weekly DEX volume.
• Gas on Ethereum can be pricey; layer‑2s like Polygon or Optimism slash costs dramatically.
• Liquidity providers earn fees from 0.01% to 1% but must manage impermanent loss.
• Interface is simple for traders, but the LP side has a steeper learning curve.

What is Uniswap V3?

When you hear Uniswap V3 is a decentralized exchange (DEX) built on the Ethereum blockchain that lets anyone swap ERC‑20 tokens directly from their wallet, think of it as a giant, trust‑less marketplace. Launched in May2021, it upgraded the original AMM model with “concentrated liquidity,” giving liquidity providers (LPs) far more control over where their capital sits.

Why Ethereum matters

Ethereum is the smart‑contract platform that powers most DeFi apps, including Uniswap. Its massive developer community, robust security record, and native support for ERC‑20 tokens make it the default home for a DEX of this scale. The downside? When the network gets busy, gas fees spike, which can turn a tiny trade into an expensive experiment.

Core tech: Automated Market Maker (AMM)

Uniswap V3 uses an Automated Market Maker (AMM) that replaces order books with a mathematical formula (x·y=k) to price trades automatically. Traders simply hit “Swap,” and the protocol adjusts the pool’s price based on the size of the trade. No order matching, no central keeper-just code.

Concentrated liquidity explained

Traditional AMMs spread LP capital across the entire price curve, which wastes capital when price stays in a narrow range. Concentrated liquidity lets LPs lock their funds inside a custom price band, like setting a limit order that stays active as long as price stays inside the range. The result? Up to 4000× better capital efficiency in some pools, meaning higher fee earnings for the same amount of capital.

Example: If you provide ETH/USDC liquidity only between $1,800 and $2,200, every swap that occurs inside that window uses your capital. When price moves outside, your funds sit idle but aren’t exposed to unnecessary risk.

Fee tier options

Uniswap V3 supports four fee tiers: 0.01%, 0.05%, 0.30% (the legacy default), and 1%. Fee tier is the percentage taken from each swap and distributed to LPs. Low‑fee pools (0.01%/0.05%) suit stable‑coin pairs where price moves little, while the 1% tier is meant for risky, low‑liquidity assets where LPs need extra compensation.

Who’s behind the protocol?

The native token, UNI serves as a governance token that lets holders vote on fee structures, pool incentives, and protocol upgrades, but it’s not required for trading. UNI holders have steered major decisions, such as the launch of V3 and the recent transition to V4.

Pros and cons at a glance

• Pros:
  • Massive TVL (~$4.5B) ensures deep liquidity across thousands of ERC‑20 tokens.
  • Concentrated liquidity boosts APY for skilled LPs.
  • Multiple fee tiers let markets fine‑tune compensation.
  • Open‑source smart contracts guarantee transparency.
• Cons:
  • Gas on Ethereum can make small swaps uneconomical during peak demand.
  • LPs face impermanent loss, especially in volatile pairs.
  • Concentrated liquidity is conceptually complex for beginners.
  • No native fiat on‑ramps; you must hold crypto already.

How to start trading on Uniswap V3

1. Install a non‑custodial wallet (MetaMask, Coinbase Wallet, Trust Wallet). Make sure it’s set to the Ethereum network.
2. Visit app.uniswap.org (the official UI).
3. Connect your wallet by clicking “Connect Wallet” and approving the request.
4. Choose the token you want to swap. The interface will auto‑populate the best route across available pools.
5. Set slippage tolerance (typically 0.5% for low‑vol assets, 1% for volatile ones) and click “Swap.” Confirm the transaction in your wallet.

For larger trades, consider enabling the “Enable advanced settings” toggle to select a specific fee tier or route.

Becoming a liquidity provider

1. Navigate to the “Pool” tab and click “Add Liquidity.”
2. Select the token pair (e.g., ETH/USDC).
3. Define a price range where you expect the market to trade. This is the core of concentrated liquidity.
4. Choose a fee tier that matches the pair’s volatility.
5. Deposit the appropriate amounts of each token. Confirm the transaction; you’ll receive a unique LP NFT representing your position.

Monitor the NFT position regularly-if price moves out of your range, you’ll stop earning fees until you rebalance.

Cost considerations: Gas vs. layer‑2

On Ethereum mainnet, a typical swap can cost between $5 and $30 in gas, depending on network congestion. If you trade smaller amounts, those fees can wipe out any potential profit.

Layer‑2 solutions like Polygon offers a roll‑up that settles transactions off‑chain and posts compressed data to Ethereum, reducing fees dramatically or Optimism provides an optimistic roll‑up that also cuts gas to pennies per trade are now fully supported by Uniswap V3. Switching to a layer‑2 typically drops gas to under $0.10 per swap while preserving near‑identical liquidity.

Uniswap V3 vs. other exchanges (quick comparison)

Real‑world performance numbers (mid‑2025)

According to on‑chain analytics, Uniswap V3 processes about $1‑$2billion in daily volume across all supported chains. Its TVL settled near $4.5billion, accounting for roughly 60% of weekly DEX volume. The top‑earning pools (e.g., ETH/USDC on Optimism) reported APRs north of 80% for LPs who correctly set narrow price ranges.

Common pitfalls and how to avoid them

• Ignoring gas spikes: Check Etherscan Gas Tracker before swapping. If gas > $20, switch to a layer‑2.
• Setting overly tight price ranges: If price slips outside your band, you stop earning fees. Start with a 5‑10% band, then narrow as you get comfortable.
• Underestimating impermanent loss: Use a calculator (many community tools exist) to model loss against expected price movement.
• Forgetting to approve tokens: The first time you add a token to a pool, your wallet will ask for an ERC‑20 approval. Approve only the needed amount.

Future outlook

Uniswap launched V4 in early 2025, adding Hook functionality and reaching $1billion TVL in just 177days. While V3 remains fully operational and widely used, many traders are already migrating to V4 pools for custom fee logic. Expect the ecosystem to keep expanding to new layer‑2s (Arbitrum, zkSync) and to add more cross‑chain bridges, which will further dilute the gas‑price pain point.