In May 2020, the release of Uniswap V2 sparked a major surge in the DeFi space.
Building on V1, the V2 version introduced the following improvements:
- Allowed direct trading between any two ERC-20 tokens
- Introduced more reliable price oracles
- Added Flash Swaps
- Implemented smart path optimization
- Switched smart contracts to Solidity from the previous Vyper
Uniswap’s ease of use and efficient trading attracted a large number of users into the DeFi ecosystem. The surge in user numbers led to an explosive growth in trading volume. As the number of users and liquidity increased, Uniswap V2’s trading volume quickly rose, at times surpassing many centralized exchanges.
The success of Uniswap V2 inspired many new DeFi projects that built upon and innovated beyond Uniswap’s model. Projects like Sushiswap, Balancer, and Curve developed in different directions with their own unique features. Lending protocols such as Aave and Compound used Uniswap as infrastructure, relying on its liquidity and price discovery capabilities. The story between Sushiswap and Uniswap is particularly interesting.
Web3 projects are generally open-source, which makes it easier for projects to “borrow” code from one another. Uniswap served as a template for many projects. On August 26, 2020, Sushiswap launched, cloning Uniswap’s code and adding some innovations such as yield farming. Sushiswap promised generous SUSHI (Sushiswap’s native token) rewards to liquidity providers.
Sushiswap’s innovations attracted significant liquidity from Uniswap, creating competitive pressure on the Uniswap team. In response, Uniswap focused more on community and ecosystem building. In September 2020, Uniswap also launched the UNI governance token and airdropped 400 UNI to all users who had previously used Uniswap. This move not only increased community engagement but also quickly restored Uniswap’s liquidity.
During the Uniswap V2 era, many projects imitated or even copied Uniswap’s code, with projects like Sushiswap posing a competitive challenge. Learning from this experience, Uniswap made improvements in its V3 release in May 2021, including changes related to its open-source protocol — restricting other projects from cloning and commercializing the code for two years. Other improvements included the introduction of concentrated liquidity, optimized fee settings, and changing the liquidity tokens (LPT) to be based on NFTs.
Uniswap has transformed from a simple token exchange platform to a leading decentralized exchange from V1 to V3. Its journey of self-improvement and innovation continues.
On June 13, 2023, Uniswap released a draft of V4 code. The key updates in this version include Hooks and The Singleton. As these crucial updates are released, they are likely to be seen in new versions of other decentralized exchanges as well.
