Uniswap V3 – What to expect?

Uniswap V3 – What to expect?

By paragism | paragism | 25 Jan 2021


Uniswap V2 was launched in May 2020. The upgrade brought significant structural improvement to Uniswap and the platform started to compete with the leading centralized exchanges (CEXs) as per trade volume. Uniswap charges 0.3% fee on every trade and the fee is generally higher than the CEXs but the trading fee directly goes to the providers of liquidity on the platform. Presently Uniswap is the king of AMM based DEXs and it has been a major driver of DeFi adoption. It won’t be wrong to say that the traders gravitated towards decentralized trading because of Uniswap. The team is working on Uniswap V3, the next upgrade of Uniswap and it is being designed to drastically improve the AMM experience for both swappers and liquidity providers.

The problem with the gas fee

DeFi activity is increasing continuously on Ethereum blockchain. The gas price is also soaring up. The cost of a transaction has increased manifold due to this. The problem with Ethereum blockchain is that the gas fee always depends on the market dynamics and it is difficult to predict fees. Sometimes, the gas fee is as low as 1-5 gwei, and sometimes it is as high as 80-100 gwei. If the users pay a low gas fee, the transactions do not get executed. Uniswap is a DAPP only and it can’t control the gas fee on Ethereum network. A swap consumes gas. Approval of a token before swap also consumes gas. Staying on Ethereum is also important as DeFi activity is mainly happening on Ethereum.

 

 

Ethereum average gas fee over time from Etherscan

What will V3 offer?

For an AMM based DEX, capital efficiency is very important. Uniswap has done a wonderful job till now and the surging trade volume is an attestation of the fact but still, there is scope for huge improvement. V3 is supposed to increase capital efficiency and flexibility while introducing superior execution. There is no concrete announcement about the launch date of V3 but the Github page has significant code updates. We can expect dynamic trading fees, creation of trading pairs without providing liquidity to both sides, low slippage. It is also possible that V3 will bring improvement to the impermanent loss structure.

DeFi TVL already at peak

Sushiswap, a fork of Uniswap, did a vampire strike on Uniswap after the launch of its platform and fairly distributed Sushi token. Almost $1B of liquidity moved to Sushiswap from Uniswap in less than a week after the happening launch as it provided strong incentives to the liquidity providers to migrate their liquidity to a new platform. Sushiswap is not doing bad nowadays but Uniswap TVL also reached its ATH. The TVL of Uniswap has grown 10854% ($27.77M to $3.042B) in last one year. Presently Uniswap is ranked at 4th position among all platforms as per DeFi TVL and obviously, it is the number one DEX.

 

 

Image from defipulse

Hype is growing

The hype regarding a better Uniswap is growing. There is a buzz in the Reddit community that V3 will implement Optimistic Rollup, a layer2 scalability solution for Ethereum. Uniswap cofounder Hayden Adams has stated many times about the importance of layer2 in an AMM based Ethereum DEX. Layer 2 implementation with Uniswap will reduce gas fee dramatically as the transactions will be taken off-chain. Just imagine swapping your tokens on Ethereum layer2 with less than 1 cent fee! UNI price has increased from $6+ range to $10+ range in the last 14 days due to speculations and it looks very bullish. UNI is currently enjoying 20th position as per market capitalization. Parabolic price projections of UNI are already flooding the internet.

 

 

UNI/USD 14 days price movement from Coingecko

Rapid innovation is the key feature to sustain in the field of blockchain technology and Uniswap has already proved its mettle. The present governance has brought the protocol to the self-sustenance mode and V3 can be a game-changer. DeFi needs to reach a broader mass. It is true that till now the development has been fantastic. People are really enjoying the experience of peer-to-peer asset transfer without the intervention of any third party but further improvement scopes are unlimited. Integration of a scaling solution within Uniswap will help it to reach a wide target customer base overnight. What if it gives you the option to swap on Ethereum layer1 or layer2 both?

Note: This post was first published here for Cryptowriter in association with voice.com.

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paragism
paragism

Cypherpunk. Writing content which I love. Creeping on the blockchain. Founder - www.thecoinbuzz.com Twitter - @paragism


paragism
paragism

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