One of the most anticipated events in the cryptocurrency ecosystem took place yesterday: the announcement of version 3 (v3) of Uniswap. Decentralized Exchange (DEX) described v3 as its best effort to make Uniswap the "most flexible and capital efficient automated market maker ever designed."
🦄 Today we are thrilled to present a detailed overview of Uniswap v3, the most flexible and capital efficient AMM ever designed!
🏃 Mainnet launch is scheduled for May 5, with a scalable Optimism L2 deployment set to follow soon afterhttps: //t.co/NTekDxWVA8
– Uniswap Labs 🦄 (@Uniswap) March 23, 2021
Uniswap's growth has been stellar, becoming the king of decentralized finance (DeFi) over the past year. With the rapid increase in users and locked value, Uniswap has had to reinvent itself just one year after the release of version 2. And it has not disappointed.
Version 3 introduces new features that differentiate Uniswap from its rivals. The most iconic is concentrated liquidity, a feature that allows liquidity pools to choose which price range they allocate their capital to.
In v2, liquidity is distributed in all price ranges between 0 and infinity. For most groups, most of this liquidity is never in use. As a result, liquidity funds (LPs) earn commissions on a small portion of their capital.
In Uniswap v3, LPs can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. In doing so, LPs construct individualized price curves that reflect their own preferences.
By concentrating their liquidity, LP v3s achieve greater capital efficiency. They can provide the same depth of liquidity that they would have in version 2, while bringing in much less capital.
"At launch, capital efficiency gains will peak at 4,000x for LPs providing liquidity within a unique 0.10% price range."
📊 v3 LPs can approximate any conceivable order book or AMM curve by composing multiple positions per pair
🤯 Infinite strategies can be efficiently aggregated together into a single pool, forming a combined curve that users can trade against pic.twitter.com/RYKeFnkhal
– Uniswap Labs 🦄 (@Uniswap) March 23, 2021
Flexible rates and advanced oracles
Uniswap v3 also offers LPs three separate fee tiers per pair: 0.05%, 0.30%, and 1.00%. "This range of options ensures that LPs adapt their margins according to the expected volatility of the pair."
For LPs, this will allow them to provide liquidity in more volatile assets, as they will earn more commissions. Previously, all trades in Uniswap groups had a 0.03% fee for trading. This model worked well for some assets, but hurt others, as the whitepaper v3.
“While this fee historically appears to have performed well enough for many tokens, it is likely to be too high for some groups (such as groups between two stablecoins) and probably too low for others (such as groups that include highly volatile or rare tokens). time they are negotiated) ”.
Version 3 also updates the Uniswap oracles. V2, which launched in May last year, introduced the concept of Time Weighted Average Price (TWAP) oracles. They store cumulative sums of pair prices per second. They allow users to calculate an accurate TWAP during a trading period by checking the price at the beginning and end of a session. These became a success, with other major DeFi projects like Compound integrating them.
V3 is updating these oracles and giving them the ability to provide much more data over a 9 day period. These advanced oracles will be cheaper and easier to use, allowing users to get data such as "Simple Moving Averages (SMA), Exponential Moving Averages (EMA), Outlier Filtering, and more."
Avoid another SushiSwap
Uniswap is the undisputed king of DeFi. According to DeFi Prime data, in the last 24 hours, Uniswap processed $ 1.1 billion in trading volume. This was 53.2% of the volume traded on decentralized exchanges, showing the absolute dominance of Uniswap.
The second largest DEX is SushiSwap, with $ 318 million for a 14.8% market share. SushiSwap is the product of Chef Nomi, a pseudonymous developer. Chef Nomi copied the code from Uniswap in August last year and created a new project, complete with his own token, SUSHI.
At the time, Uniswap did not have its native UNI token, and as a result, a lot of liquidity left Uniswap and headed for its new rival. Since then, Uniswap has launched its token, which has become the eighth most valuable on the market. With a market capitalization of $ 16 billion, it is 8 times more valuable than SUSHI.
This incident has made Uniswap more cautious with its products. By releasing v3, the project made sure it inserted a commercial font license that prevents any other entity from copying this code. The license expires after two years.
“We strongly believe that decentralized financial infrastructure should ultimately be free open source software. At the same time, we believe that the Uniswap community should be the first to build an ecosystem around the Uniswap v3 Core codebase. "