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How to earn Interest With Uniswap

**Uniswap** is a completely **decentralized exchange** for ETH and other tokens that are issued on the Ethereum blockchain, for example Compound’s COMP token. **Uniswap provides two main use cases**: users can provide liquidity for others who want to exchange tokens or they can exchange tokens against each other. If you provide liquidity, you earn a commission fee of all trades being made by traders. **In the following we will take a closer look at the two use cases:**

**1.** **Bob** wants to provide liquidity for a so-called liquidity pool. First, he has to decide on a specific Ethereum-based token for which he wants to provide liquidity. **Bob** opts for the COMP token. If **Bob** now wants to provide COMP tokens worth 100 USD to the COMP liquidity pool, he must also provide ETH to the same amount, i.e. also ETH worth 100 USD. **Bob** would then have invested 200 USD. All users who provide liquidity for his pool would then earn 0.3% of the commission fee on every trade that takes place in the ETH-COMP currency pair. How much Bob earns exactly on all commissions in the ETH-COMP pool depends on his share of the total ETH-COMP liquidity pool. Bob can withdraw his liquidity from the pool at any time. **2**. Next, **Bob** would like to swap ETH for DAI. This is very simple: **Bob** selects the appropriate currency pair and is directly offered the price. With one click Bob exchanges the tokens, paying a commission fee of 0.3%. He would pay twice the commission fee (0.6%) if he were to exchange DAI for COMP, because Uniswap performs two swaps in the background: first DAI for ETH, and then ETH for COMP. Now, imagine that Bob accidentally enters 1,000 ETH instead of 1 ETH, and the price for the swap suddenly becomes much more expensive. To understand why this is the case, we must to take a closer look into Uniswap’s pricing mechanism.

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