Uniswap v3 coming soon — capital efficiency with 4,000x improvement

Lukas Wiesflecker
Mar 26 · 5 min read

The decentralized exchange Uniswap experienced a lot of hype in the past year. During the peak periods, the decentralized trading venue recorded a higher trading volume than the popular exchange Coinbase from the United States. Currently, the developers behind Uniswap are preparing a new version, which is already in the starting blocks. Version 3 of the trading platform is primarily intended to increase the capital efficiency of liquidity providers. According to those responsible, Uniswap is to become the “most flexible and efficient market maker” in the crypto world. As things stand, the new version will be transferred to the mainnet at the beginning of May.

Uniswap upgrades — new version coming in May

Uniswap already caused quite a stir when it was released. With just 100,000 US dollars development costs and a development in record time, the decentralized exchange conquered the entire market in flight. Today, Uniswap captures about 60 percent of the entire decentralized trading market. Now, the company behind the exchange announced in a blog post Tuesday that a new version is in the wings. At its core, the upgrade is designed primarily to increase capital efficiency for liquidity providers. The announcement talks about a 4,000-fold improvement over Uniswap v2. Hayden Adams, author of the blog post and founder of Uniswap, also reported a new feature — “concentrated liquidity.”

The new feature is the centerpiece of the new version and allows liquidity providers to set customer-specific price ranges. In other words, in the future they will be able to set minimum and maximum prices for their shares stored in a liquidity pool. In practice, this means that funders can, for example, only provide capital at certain market phases and price ranges. For example, if the Ether (ETH) reaches a price of 2,000 to 2,500, chapters from a liquidity provider could flow into the pools in an automated manner. In this way, it should be possible to increase capital efficiency many times over. Capital would then predominantly flow into the market when the market has special needs and transactions increase.

New upgrade allows liquidity providers room for new investment strategies
Haydem Adams himself states that capital providers can effectively earn more fees for the same amounts. In general, the new version makes Uniswap an interesting platform for investment strategists. The trading experience and execution quality should improve “by an order of magnitude, if not more,” according to Adams. In the new version, Uniswap would thus address a problem that has always accompanied decentralized exchanges. They suffer from significantly lower liquidity than their centralized counterparts. In this context, the low liquidity is the trigger for many other problems, which at their core have the same origin.

“You can raise the same amount of capital to earn more fees, or use the marginal capital saved to invest in another strategy of your choice” — Teo Leibowitz, Head of Strategic Direction at Uniswap

More recently, some of Uniswap’s competitors have been playing catch-up in this area. Most notably, major competitor Curve has been able to provide improvement, at least in decentralized exchanges with stable coins, significantly reducing the impact of slippage and trade execution. The decentralized trading protocol Balancer tried it with weighted crypto pools. However, according to Uniswap, no one has yet addressed the core problem of overall insufficient liquidity and limited options for capital providers.

Uniswap v3 coming in early May

In addition to the aforementioned functionalities, an updated fee structure is also part of Uniswap v3. Henceforth, there will no longer be a uniform fee, but three levels ranging from 0.05 to 0.30 to 1%. With this step, Uniswap wants to serve all types of markets in the best possible way and ensure greater activity in all trading pairs. At the same time, those responsible are reacting to the many clones that have simply copied the public core protocol for their own projects. In particular, the Uniswap clone Sushiswap was able to secure large market shares in the recent past. To better contain commercial use by clones in the future, the Uniswap v3 core protocol is filed under the BSL 1.1 license.

The upgrade planned for early May will be the last of its kind to come from developers. Further versions in the future will be driven by the community.

Uniswap v3 offers many new incentives to investors

Uniswap is the market leader in decentralized exchange trading. A new version of the core protocol is scheduled to be transferred to the mainnet in early May, where it will provide several new features. Liquidity providers in particular should then get their money’s worth with new incentives for strategic capital allocation.

With the move, Uniswap officials are responding to the platform’s ongoing liquidity problems. Accordingly, the new version is the logical consequence in order to further maintain the platform’s dominant market position. Recently, one or the other competitor was able to catch up at this point.

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Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

Lukas Wiesflecker

Written by

Talk about crypto stuff, personal development, entrepreneurship, travel experiences, and things that inspire me! Whatever you do, do it with love and passion!

Coinmonks

Coinmonks

Coinmonks is a non-profit Crypto educational publication. Follow us on Twitter @coinmonks Our other project — https://coincodecap.com

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