Uniswap: a centralised decentralised exchange (DEX)
Context of study and presentation of Uniswap
Uniswap is a decentralised exchange (DEX) built on blockchain technology, enabling token swaps without intermediaries. Unlike traditional exchanges that use order books, Uniswap employs an Automated Market Maker (AMM) model, where prices are determined algorithmically via smart contracts on Ethereum. These contracts allow users to trade tokens directly from liquidity pools, which are funded by Liquidity Providers (LPs). LPs deposit token pairs into pools and earn fees from trades. Uniswap v3 introduced concentrated liquidity, allowing LPs to allocate funds within specific price ranges rather than across the entire spectrum, improving capital efficiency and reducing slippage, which is the difference between expected and actual trade price.
Our study focuses on the WETH/USDC pool in Uniswap v3. Examining liquidity concentration and LP behaviour during stressed market conditions, the goal is to assess whether liquidity provision is dominated by sophisticated actors and how this impacts decentralization.
Identifying stress periods
Stress periods are intervals of abnormal volatility and trading activity that can destabilize liquidity. To identify these, we analysed on-chain data from January 2022 to February 2025, focusing on mint events (liquidity added), burn events (liquidity removed) and swap events (token exchanges).
Two main metrics were used: daily trading volume and relative volatility (standard deviation divided by mean price). After modelling these metrics as log-normal distributions and applying the Shapiro-Wilk test for validation, we flagged stress days using the 97th percentile threshold. Clustering using an application method of density-based spatial clustering (DBSCAN) grouped these days into coherent stress periods. Key stress windows included the Terra Luna collapse (May 2022), FTX bankruptcy (November 2022) and Silicon Valley Bank (SVB) failure (March 2023). These events triggered liquidity withdrawals and price dislocations, making them ideal for analysing LP behaviour under pressure.
Analysis of top liquidity providers
Our dataset revealed 102 unique LPs, in which 47 were active during stress periods. Liquidity provision was highly concentrated with the top three LPs accounting for over 98% of minted liquidity. We then computed a stress activity ratio (liquidity added during stress period divided by total liquidity added) to identify opportunistic actors. The results showed that several LPs exhibited ratios above 50%, suggesting strategic behaviour.
Forensic analysis on the Mazars’ blockchain Ethereum nodes showed that many top LPs during stressed periods were smart contracts linked to MEV (Maximal Extractable Value) bots. MEV bots exploit transaction ordering for profit using techniques such as arbitrage and sandwich attacks. For example, one LP was associated with the well-known MEV bot “jaredfromsubway,” indicating advanced automation and significant resources. Another LP was tied to Popsicle Finance, a now-defunct cross-chain liquidity optimiser. These findings suggest that sophisticated actors dominate liquidity provision, at least during stressed periods, leveraging algorithms and automation to capture fees during volatility.
Sophistication among liquidity providers
Evidence strongly indicates that most top LPs are sophisticated participants rather than retail users as their characteristics include large transaction volumes, deployment of custom smart contracts and MEV strategies requiring technical expertise. While blockchain transparency allows tracing of wallet interactions, identities remain pseudonymous, making it difficult to confirm institutional affiliation. Nonetheless, behavioural patterns such as concentrated liquidity near prevailing prices and rapid repositioning during stress mirror traditional market-making strategies. This undermines the narrative of democratised finance, as permissionless access alone cannot substitute for the capital, knowledge and automation required to participate effectively. By contrast, retail liquidity providers could be exposed to impermanent loss, the reduction in value that occurs when the relative prices of pooled assets diverge compared to simply holding them, thereby earning lower returns and reinforcing structural inequalities within decentralised markets.
Summary and implications
Our analysis confirms that Uniswap v3 liquidity is highly centralised among a few sophisticated actors, particularly during stress periods. These participants employ strategies akin to high-frequency trading, concentrating liquidity around current prices and exploiting volatility for profit. While decentralization removes intermediaries, it does not guarantee equal opportunity as technical barriers and resource requirements favour advanced players. This concentration introduces systemic fragility, as dominant LPs can withdraw liquidity without obligation and amplify volatility. Compared to traditional markets, where market makers are regulated and incentivised to maintain stability, decentralised finance (DeFi) lacks safeguards such as circuit breakers or accountability mechanisms. Bridging this gap will require innovation in governance, risk management and incentive design to ensure resilience and fairness. Until then, decentralised exchanges like Uniswap will remain open in theory but competitive in practice, with power concentrated among a few sophisticated entities.
To explore the complete analysis and detailed insights, we invite you to download the full report below.
