Here’s an explainer on Ethereum DEX Uniswap’s V3 update 🚨 This article is 4 years old...
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Here’s an explainer on Ethereum DEX Uniswap’s V3 update
The DEX would now allow liquidity providers to make markets at custom price levels and will introduce multiple fee tiers.
2 min read
Updated: Mar. 5, 2022 at 2:22 am UTC
Cover art/illustration via CryptoSlate. Image includes combined content which may include AI-generated content.
Decentralized exchange (DEX) Uniswap released the details of the much-awaited v3 upgrade, as per a blog post on Tuesday.
“Today we are thrilled to present a detailed overview of Uniswap v3, the most flexible and capital-efficient AMM ever designed,” it said, adding the launch is scheduled for May 5, 2021, with a Layer-2 deployment set to arrive “soon after.”
1/
? 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
Two major features
The Ethereum-based DEX is the sixth-largest decentralized finance (DeFi) platform as per tracking site DeFi Pulse. Over $4 billion is ‘locked’ on the platform as of press time, with traders exchanging millions of dollars worth of cryptocurrencies on the platform every day in a trustless, non-custodial manner.
And it’s all set to offer more to users. As per the blog, the two major changes introduced by Uniswap are “Concentrated Liquidity” and “Multiple Fee Tiers.” The former would allow liquidity providers (LP) to control the range of prices that they want to supply capital to, while the latter would compensate users for taking greater risks for providing their capital.
To explain the above: Uniswap users supply their own funds—in any ERC20-based cryptocurrency—to the protocol which, in turn, uses an Ethereum smart contract to match trades between any other user trying to place trades on the DEX.
The seeds of Uniswap v3 actually came from a conversation with @koeppelmann in which he pointed out exactly how much of the liquidity in Uniswap v1 was wasted.
After that, @haydenzadams and I became obsessed with solving this problem without sacrificing Uniswap's advantages. https://t.co/Za2gxlhs3A pic.twitter.com/ihQtQLxUyE
— Dan Robinson (@danrobinson) March 23, 2021
The fund suppliers are called “LPs,” who risk their capital to ensure Uniswap runs smoothly and efficiently, earning a fraction of fees on each trade in the markets they provided liquidity to. They, in addition, receive “LP tokens” which can be staked on other exchanges to earn yield.
Previously, LP funds were continuously supplied at all prices and market rates, leaving most capital unused and resulting in slippage for traders. But with concentrated liquidity, LP funds can be deployed in a very specific range of prices, allowing for low slippage trading while allowing LPs to earn more fees.
As per Uniswap, this allows the efficiency to increase by over 4000x for LPs adding liquidity to a 0.10% price range. As such, the upgrade would also introduce other features for users, such as ‘Advanced Oracles,’ ‘Flexible Fees,’ and ‘Non-Fungible Liquidity.’
Share regulatory insights?
Uniswap’s v3 upgrade was generally well received among crypto circles on social media, with most users praising the better options of deploying capital and LPs using riskier strategies.
Meanwhile, some crypto figures shared their thoughts about the upgrade. Maya Zehavi, a crypto veteran and founder of the Israeli Blockchain Industry Forum, said that the general regulatory aspects of Uniswap would be helpful to other projects in the space.
“It would be really helpful to a lot of crypto projects if Uniswap could disclose their regulatory plans & how the FATF would apply to V3, if they’ve had those talks with regulators,” she tweeted.
It would be really helpful to a lot of crypto projects of @Uniswap could disclose their regulatory plans & how the FATF would apply to V3, if they’ve had those talks with regulators.
— Ma/ya Zehavi (@mayazi) March 24, 2021
UNI, the native token of Uniswap, trades at $30 at press time and down -6% compared to the past day.
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In this article
Since its inception, the Uniswap Protocol (“Uniswap”) has served as a trustless and highly decentralized financial infrastructure.