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Uniswap V3 liquidity pools can focus their capital within custom price ranges to provide more liquidity at desired prices. By doing this, liquidity pools create individualized price curves that reflect preferences.
Liquidity pools bring together any number of distinct focused positions within a one pool. By doing this, a liquidity pool can guess the shape of any automated market maker or active order book. This gives the ability for users to trade against the combined liquidity of all curves with no gas fee increases. Trading fees earned by collecting at a price range are split pro-rata by the liquidity pools appropriate to the amount of liquidity they contributed to. Uniswap V3 did more than $58.936bn in volume in 2021 Q2 and generated $153.72m in LP fees.
The largest outstanding competitor for Uniswap is Curve Finance which has ~15% of the DEX market share by volume and far fewer pairs supported. Uniswap attracted traders in the stablecoin DEX market when it implemented its 0.01% trading fee tier. Stablecoin trades in the USDC/USDT market jumped 60% overall against Q4 2021. This is a 114.1% increase compared to Q3, it tripled in nine months. 87.3% of the trading volume, or about $8.5 billion came from the lower 0.01% fee tier. Liquidity increased 11.2% over the quarter. Uniswap appears to be effectively competing against Curve as a result of its enhanced capital efficiency.
Source: Messari
This type of support boosts network effects from which Uniswap and its users benefit greatly. Incentivized contributions lead to increased protocol functionality and usage. Usage generates fees, which attract liquidity. Increased liquidity further entrenches Uniswap, attracting additional users, contributors, and integrations. This has led to Uniswap being the DEX market leader by a wide margin.
Image credit: Dune Analytics
Uniswap V2 and V3 protocols account for ~25% of all Ethereum transactions. Since V3 launched in May 2021, they have seen over ~860,000 unique addresses swap on V2 and V3. The average trade size on V3 is ~$3,400, doubling the average transaction on V2.
Source: Dune Analytics
On September 17, 2020, Uniswap distributed its UNI token with a huge airdrop that placed 400 UNI to all holders who used the protocol since its beginning. A total of around 15% of the UNI supply was given through this airdrop. 35,000 wallets received UNI and IMX tokens for being liquidity providers to Uniswap V2.
Uniswap has seen steady growth in Reddit subscribers, even as crypto entered a bear market.
- Twitter following: 889,546.
- Reddit following: 62,434.
Source: Messari
Finally, Uniswap Labs announced in June 2022 that it acquired NFT marketplace aggregator Genie, enabling the protocol to further incorporate NFT (non-fungible token) functionality into its product range. The acquisition allows the firm to incorporate NFT marketplaces into the Uniswap’s web app.
