Who actually uses Uniswap?

I’ve long had a nagging question about decentralized exchanges (DEXs) like Uniswap. If most crypto trading volume globally is driven by professional institutions, and institutions care most about capital efficiency and execution cost, then DEXs should be at a structural disadvantage. On-chain trading requires extra computation, pays gas fees, and often looks more expensive than centralized exchanges (CEXs) like Binance or Coinbase. So who is actually using Uniswap, and what makes them stay?

I went down a research rabbit hole with Gemini's Deep Research, added some outside data, and came away with a clearer picture. The answer isn’t monolithic: different archetypes use DEXs for very different reasons. And surprisingly, for certain trades, Uniswap is not only competitive with CEXs it can actually be the more capital-efficient choice.

3 types of people who actually use DEX

1. Retail
Retail traders are the lifeblood of Uniswap’s “long tail.” Because anyone can launch a token and pair it with ETH or USDC, Uniswap becomes the earliest venue for new assets, often memecoins, community tokens, or experimental DeFi projects. These users want permissionless access to volatility. They’re after asymmetric returns, the kind you only get from buying tokens before they ever reach Coinbase.

Token Terminal reports Uniswap serves more than 4.2 million weekly active users, a large portion of them trading tiny, volatile pairs. Their activity is distinct: frequent, small trades in low-liquidity pools. The upside is potential 10x gains. The downside is rug pulls, high gas, and impermanent loss if they try to LP. In effect, retail provides raw activity that makes the market fertile ground for other players.

2. Arbitrageurs and MEV bots
If retail creates inefficiencies, bots harvest them. Automated agents are the dominant force by volume, accounting for 50–70% of trades in mid-cap pools on Uniswap. Their strategies fall into two buckets:

• Cross-venue arbitrage: buying on Uniswap, selling on Binance when there’s a price gap.
• MEV (Maximal Extractable Value) strategies: frontrunning, backrunning, and especially sandwich attacks.

The numbers are staggering. One academic study tracked 480,276 sandwich attacks over 12 months on Ethereum, generating 64,217 ETH (about $189m at the time) in bot profit. Victims lost ~30,525 ETH in excess slippage. Bots rely on low-latency infrastructure, direct node access, and private relays like Flashbots to stay ahead. They turn Uniswap’s transparency into a predictable tape of exploitable opportunities.

3. Sophisticated Liquidity Providers and whales
Liquidity isn’t primarily provided by retail. A BIS study found 65–85% of Uniswap v3 liquidity comes from large players, whales, funds, and treasuries. With concentrated liquidity, it’s more like running an options strategy. Positioning your liquidity narrowly is capital efficient, but risky: step outside your range and you stop earning fees, while eating impermanent loss.

These LPs act like market makers, moving liquidity bands around constantly. Done well, the returns are asymmetric; done poorly, IL dominates. This is why most Uniswap liquidity is professional capital, not hobbyist retail.

DEX vs CEX

The assumption is that CEXs always offer deeper liquidity. But empirical data challenges that. Both Uniswap Labs and Kaiko compared market depth and slippage across venues:

• For ETH/USD pairs, Uniswap v3 had about $160M of liquidity within ±2% of mid-price, roughly double Binance or Coinbase at ~$80M each.
• For ETH/BTC, Uniswap’s liquidity was even stronger: 3x deeper than Binance, 4.5x deeper than Coinbase.
• A $5M ETH/USD trade would move Uniswap by ~0.5% (about $24,000 cheaper than Coinbase, where the same trade costs ~1%).
• Kaiko confirmed similar results on WETH-WBTC, showing Uniswap pools with 3–6x more depth than major CEXs within a 6% band.

Capital efficiency is task-dependent. CEXs aggregate diffuse liquidity across their order books, which works well for small and medium trades. Uniswap v3 concentrates liquidity at the mid-price, creating superior depth exactly where it matters for block trades. For institutions moving size, on-chain can actually be cheaper.

What if a DEX had only LPs and bots?

Suppose you launched a Uniswap v3-like DEX, but the only participants were liquidity providers and arbitrage bots. Could that business sustain itself?

Short term, yes. If ETH moves from $3,500 to $3,510 on Binance, bots would instantly buy ETH at $3,500 on your DEX, sell at $3,510 elsewhere, and pocket the spread. LPs would earn a small fee, and your DEX price would sync back to the global market.

But long term, the system collapses. Here’s why:

1. Without subjective traders taking views, your DEX only processes trades when external markets move. If crypto chops sideways, volume dries up.
2. Arbitrage is most active during volatility, exactly when LPs suffer the worst IL. The profit bots extract comes directly out of LPs’ pockets, fees rarely cover it.
3. Rational LPs exit once they see they’re subsidizing bots. Pool depth shrinks.
4. With shallow liquidity, slippage rises, and arbitrage stops being profitable. Even bots leave.
5. You end up with no liquidity, no traders, no fees — a ghost town.

The insight is simple: subjective traders — people with opinions, needs, and timing — are the true engine of any market. They generate the organic flow that makes LP yield sustainable and gives bots something to arbitrage.