Uniswap v1 is an on-chain system of smart contracts on the Ethereum blockchain, implementing an automated liquidity protocol based on a “constant product formula” . Each Uniswap v1 pair stores pooled reserves of two assets, and provides liquidity for those two assets, maintaining the invariant that the product of the reserves cannot decrease. Traders pay a 30-basis-point fee on trades, which goes to liquidity providers. The contracts are non-upgradeable.
Uniswap v2 is a new implementation based on the same formula, with several new highly desirable features. Most significantly, it enables the creation of arbitrary ERC20/ERC20 pairs, rather than supporting only pairs between ERC20 and ETH. It also provides a hardened price oracle that accumulates the relative price of the two assets at the beginning of each block. This allows other contracts on Ethereum to estimate the time-weighted average price for the two assets over arbitrary intervals. Finally, it enables “flash swaps” where users can receive assets freely and use them elsewhere on the chain, only paying for (or returning) those assets at the end of the transaction.