Why is Uniswap V3 changing the DeFi market?


In a field that has only seen significant development in the past 12 months, it is almost untimely to announce a new feature of DeFi that is completely game- changing .

UniswapV3 was officially launched today to change the infrastructure that supports automated market makers (AMMs) .

From liquidity supply to Layer 2 expansion, as well as the new basic situation of NFT , it can be said that V3 has changed greatly .

Trailblazer ‘s evolutionary journey

Uniswap V1 in 2018 Nian 11 months since launch, is a pioneering decentralized Exchange ( DEX ) , and since then is automatically maker set the standard. Uniswap and like SushiSwap and Pancakeswap this popular branch has now begun in the number of users and average daily trading volume terms and their centralized, non-automated competitors to compete.

V2 , launched in May 2020 , consolidated Uniswap ‘s position as a leading DEX and contributed to the tremendous growth of DeFi this summer . V2 introduces the now popular user-led liquidity model, allowing platform users to deposit ERC-20 tokens into liquidity mining pools to obtain transaction fees and liquidity provider ( LPs tokens with further utility . In turn, these mining pools provide liquidity for transactions, allowing the entire platform to operate without a market maker or order book.

Customized high-efficiency liquidity

Uniswap now occupy the DEX market for about 20% share , the recent daily trading volume exceeded 20 billion dollars. However Uniswap not content to remain in its current get the results , it has created more than previous iterations have more impact of V3 , pushing the auto maker to a new direction on the go , while addressing many of their current most Outstanding issues.

The first is what V3 calls “concentrated liquidity”. Centralized liquidity allows liquidity providers (LPs ) to accurately choose the price range they want to provide liquidity, instead of the system dispersing assets in a mining pool, but within all possible price ranges. This in turn creates an order book similar to CEX , while also limiting the increase in the risk of temporary losses that people are very worried about . V3 is not an order book model. V3 introduces a “price tick” (tick) for automatic market makers. Liquidity providers can deploy assets in different price ranges according to market conditions, and this will not change the automatic operation. The mode of operation of market makers.


Judge the capital efficiency of Uniswap V3, design standpoint and perspective issues. This seemingly minor change means that, in the V3 into the 1200 dollar liquidity providers ( LPs can earn with the V2 into the million dollar liquidity providers the same fee which makes them The difficulty of capital operation increased by 8.34 times. This is because assets are usually traded within a range at any given time, rather than fluctuating between USD and unlimited USD, and the V2 mining pool currently compensates for this fluctuation by allocating liquidity. This capital efficiency makes the supply of liquidity more attractive to users and professional market makers.

The following images are taken from Finetmatics in Uniswap V3 videos, showing how the V2 and V3 ofETH-DAI work in the liquidity pool.


Less loss, more chance

Uniswap developers believe that compared with V2 , this small change will increase capital efficiency by 400 times, thereby enabling liquidity providers to obtain higher returns, while reducing losses in major market events and helping them reduce the risk of loss. (That is, a loss of $1200 instead of $10,000. In the above example, ETH should become $0. )

V3 which is its user-friendly features will allow liquidity providers can choose a mine deploy their funds in more charges range of pools, so they can take advantage of multiple pricing opportunities. They can also choose their fee level, such as 0.05% for stablecoins and other less volatile assets to establish a market, to 1% for relatively rare trading pairs .

Complex market making

Entering the CEX field, V3 users will also be able to set range limit orders, specify the price at which the asset is transferred from one asset to another asset ( for example, DAI to USDC ) , and then withdraw it before the asset falls back below that price and is converted again funds. As shown in the figure below, this may bring considerable benefits to liquidity providers , while opening the door to more complex market-making strategies on the platform.

It is important that all these operations can use one of DeFi ‘s main innovations namely NFT . They will be non-homogeneity of the ERC-721 tokens representative of rather than by liquidity providers positions as homogenization of ERC-20 token distribution. This will also help expand the potential of advanced market-making strategies in V3 and increase secondary trading opportunities.


Bring DeFi to the mainstream market

V3 main innovation of the last one is the V3 plan after deployment at Layer 2 protocol Optimisim posted on the ( expected in 2021 Nian Yue ). Although the development team stated that lower gas costs will be a sign of the innovation brought by V3 , the switch to the almost free Layer 2 protocol will really change the pricing of DEX games.

Although like Polygon/MaticLayer 2 agreements such as , xDai, and Loopring have been receiving much attention recently , but moving one of DeFi ’s largest and most well-known exchanges to Layer 2 may greatly promote this movement . In turn, this may expand Ethereum , thereby exponentially expanding the DeFi ecosystem, allowing a new wave of scale and innovation to emerge , which may truly start to pose a threat to traditional finance .

Encryption currency within the field, V3 will bring incredible capital efficiency should be able to significantly reduce transaction slippage , which will focus on a number of large type Exchange competition execution time pave the way . Combined with the function of setting a range to limit orders , this may prompt some changes between the two largest market segments of cryptocurrencies .

All of these factors can make V3 become subversive power surge, it can not only change the DeFi of work mode, but also change the shape and direction of the entire encryption currency industry.

The market is changing, and you are welcome to refer to our previous Uniswap V3 article: https://www.odaily.com/post/5166120

More views are welcome to discuss together.

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