How exactly do we utilize Uniswap V3?

Uniswap V3 provides automated market makers with a secure and reliable “layer solution” on which all other protocols can be built, and this new release is exciting for many.

How exactly do we utilize Uniswap V3?

The recent release of Uniswap V3 has been a huge hit, attracting a lot of attention to ethereum and the cryptocurrency space as a whole, providing a secure and reliable “layer solution” for automated market makers on which all other protocols can be built, and this new release has a lot of people excited. Many people are excited about this new release.

It is worth noting that the core of Uniswap V3 is its customizability, allowing users to focus the liquidity used for market making positions into a specific price range without having to explore the full range of price exposure. The core of the contract relies on the NonFungiblePositionsManager.sol contract, which allows users to interact with each other to deposit and withdraw liquidity. In addition, a non-homogenized token (NFT) representing liquidity will be minted and destroyed accordingly in Uniswap V3, an ERC-721 token with a unique Token ID, and as of May 15, approximately 15,000 Uniswap NFTs have been minted.

Not only that, but the Uniswap V3 liquidity pool can also be customized to set token exchange fees. When Uniswap V3 provides liquidity, the Multicall function, which can bundle multiple transactions at once, is called. Once a liquidity pool contract supports a particular pair, the liquidity will be deposited directly into that pair; if the liquidity pool contract does not support a particular pair, then a new liquidity pool contract will be deployed.

How users can take advantage of Uniswap V3

So how can users take advantage of Uniswap V3? Let’s start by analyzing the number of Uniswap NFT castings. To date, approximately 15,000 Uniswap NFTs have been minted, and based on the number of NFTs minted, the total liquidity of these pairs represents approximately 30% or more of the total liquidity of Uniswap V3. In fact, each Uniswap NFT is a unique representative of a user’s market order, so we know the performance of the underlying asset pair by its NFT.

The analysis shows that there are two types of liquidity pools that are currently the most popular: asset-asset trading pairs and volatile asset-stablecoin trading pairs. wETH-stablecoin pairs are popular among liquidity providers because liquidity providers may use the pairs to target their market-making strategies. Assuming the current price of the DAI / ETH liquidity pool is 1,500 DAI / ETH and you expect ETH to fall to 1,000 DAI during the next market downturn, after which ETH will rebound, you can then set up a buy order at 1,000 DAI / ETH, meaning that once the price falls within range DAI will be automatically converted to ETH. Similarly, limit sell orders are possible, i.e. if one wants to sell ETH when the price reaches a certain price range, one can simply set a price order above 1,500 DAI / ETH and then only provide ETH to that liquidity pool.

It is worth noting that because these trades, WBTC-WETH and USDC-USDT, are highly correlated to price action, they are relatively unlikely to suffer an Impermanent Loss and are therefore more attractive to liquidity providers. However, traders may still face large slippage on these pairs.

We can model this by the formula “x * y = k” over the entire price range, as we did in Uniswap V2. As the x-axis moves along the Uniswap invariant curve, the price volatility on the y-axis gradually increases. However, for pairs holding highly correlated assets, high slippage trades should not really occur.

In fact, Uniswap V3 was designed with the stable asset slippage problem of Uniswap V2 in mind. In Uniswap V3, the formula “x * y = k” only applies to price ranges actively set by the liquidity provider, and liquidity must be concentrated around very narrow spreads. Although the Daily Trading Volume of Uniswap V3 is slightly inferior compared to other protocols, when comparing Total Value-Locked, Uniswap V3 is by far the leader and is widely recognized for its liquidity pool efficiency.

Charm strategy is simple and smart

One current project based on Uniswap V3, charm.fi’s Alpha Vault, offers DeFi users a whole new opportunity to adapt to a higher level of complexity than ever before in accessing liquidity provisioning strategies. This automated liquidity provisioning strategy is now deployed on the mainnet and, as with all on-chain activities, smart contract programmability introduces a new way for DeFi users to create automated strategies in a variety of capital markets.

Arguably both simple and clever, Charm’s Alpha Vault moves your market making order price range up and down in response to market price changes, allowing for a high level of asset management, and the liquidity provider can therefore earn transaction fees on an ongoing basis. On Uniswap V3, once the market price exceeds the price range set by the user in the liquidity position, the user will no longer be able to earn transaction fees from the liquidity funds provided.

How efficient is the gas of Uniswap V3

Both on-chain activities such as casting NFTs and routing require the support of complex calculations and therefore require higher gas fees to execute. We found that in the past week, exchanges on the Uniswap platform spent close to 65,000 Ether on gas fees, while the number of gas fees spent by Uniswap as a percentage of total Ether gas fees has been steadily increasing.

Some believe that Uniswap V3’s contract has had a huge impact on the gas market, with its share of gas fees spent reaching nearly 50% of the total, ranking highest among the top 20 projects in terms of gas fees spent. Indeed, aggregated data shows that providing liquidity on Uniswap V3 does cost a significant amount of ETH per transaction as gas fees. This difference is even more pronounced when one considers that each time a new liquidity position is minted (i.e. NFT) multiple repeat transactions may also be made.

With the peak price of Ethergas on May 11, the average cost of minting on Uniswap V3 was about 0.17 ETH, compared to about 0.15 ETH on Uniswap V2. But even though the average cost of minting on Uniswap V2 was lower, people seemed more willing to trade on Uniswap V3 because The number of new liquidity provider positions on Uniswap V3 has been steadily decreasing.

So, after all, do token exchange transactions on Uniswap V3 consume more or less gas fees? In response, Uniswap V3 stated in its announcement that not only does Uniswap V3 feature groundbreaking design improvements, but the cost of token exchange for gas on Uniswap V3 on the Ether mainnet is also cheaper than Uniswap V2. At the same time, however, there are many who dispute Uniswap’s claim that the price of gas for Uniswap V3 does not appear to be lower than that of Uniswap V2, but this situation is largely in line with expectations.

In order to further compare the gas fees of the two, we further aggregated the gas fee data spent in Uniswap transactions and calculated the “average gas expense” metric according to the following consensus: total paid gas fees / total number of Uniswap V3 tokens exchanged and total paid gas fees / total number of Uniswap V3 tokens exchanged. total paid gas fees / total tokens exchanged for Uniswap V2.

By comparing the above two metrics, we find that the token exchange cost on Uniswap V3 seems to be slightly higher. Taking the data of May 13 as an example, the average gas fee paid per transaction on Uniswap V3 is about 0.037 ETH, while the average gas fee paid per transaction on Uniswap V2 is about 0.027 ETH, which means that if calculated based on the price of ETH on that day, users will pay more per transaction on Uniswap V3 than on Uniswap V2. This means that users will pay more than $30 more per transaction on Uniswap V3 than on Uniswap V2, based on the current day’s ETH price. In addition, comparing the past 10 days, the token exchange cost on Uniswap V3 is also higher than Uniswap V2 by about 0.0024 ETH on average, and the standard deviation of gas expense is about 0.03078 ETH.

Summing up

For the cryptocurrency market, there is indeed a lot of demand for optimizing the cost of gas. Currently, Uniswap V3 has dedicated a portion of its funding to support research on complex market making strategies aimed at further optimizing the return on capital for specific assets. With the passage of time, we can subsequently compare further the gas cost expenditures of Uniswap V3 and Uniswap V3.

Although Uniswap V3 still has higher gas expense issues, it is undeniable that Uniswap V3 has achieved a number of impressive results since its launch and has brought more benefits to the development of the DeFi ecosystem.

Uniswap V3’s unique stability and fully decentralized governance, the resolution of the high slippage issue, and the further improvement of capital efficiency with simple discretionary strategies, are all worthy of our attention.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/how-exactly-do-we-utilize-uniswap-v3/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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