Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

A detailed explanation of the impact of Uniswap V3 on the DeFi industry.

In 2020, the big pie decadent mainstream market performed poorly and DeFi surged, in which Uniswap V2 became the leader in the DEX field with its constant product automatic market maker AMM and became the new wealth code in the crypto industry.

Over the past year, Uniswap V2 has continued to set new records for decentralized exchanges, with record lockups and trading volumes. Now that Uniswap V3 has officially launched, will it be the key to pry a new round of DeFi boom?

After the first day of Uniswap V3’s launch, Uniswap founder Hayden Adams tweeted that its 24-hour trading volume had already reached more than double that of V2’s first month.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

As of press time, Uniswap’s total lock volume has exceeded $500 million ($546.25 million), with 24-hour trading volume reaching $409.4 million.

In addition, according to official Uniswap Info data, Uniswap V3 24-hour trading volume to lock volume ratio reached 75.03%, far exceeding V2’s 19.57%.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

The core initiative of the new version, “centralized liquidity”, has been a success, judging by the volume of locked positions and trading data shown in Uniswap V3 so far, and the higher capital efficiency provides stronger execution of trades.

It is foreseeable that Uniswap will sit at the top of DEX for a long time to come. Just ask, will it spark a new DeFi boom?

DeFi boom in 2020

Looking back at the DeFi development in 2020, the number of active wallets grew from 58,000 to 200,000; the transaction volume grew from $21 billion to $270 billion as well as the total lock-in of $13 billion for the Ethernet DeFi ecosystem at an all-time high.

The reason for the DeFi boom is “liquidity mining” and “revenue farming”.

The world is full of profit. With a poor pie market and a slow global economy, liquidity mining projects attract a large influx of capital by providing liquidity and earning tokens.

At this time, the DeFi market was growing wild and overgrown, with no code audit, hacking, security issues and many other problems, turning DeFi into a casino.

In this wave of short-lived fever, the 48-hour crash at the peak of YAM’s debut that made more and more people return to reason, the transparency and security of decentralized finance behind the DeFi fever let people see the possibility of upgrading the development of the financial industry in the future.

Decentralized exchange (DEX), decentralized lending, stable coins, payments and other different categories of decentralized financial applications began to step into a benign development trajectory.

Among them, DEX, as an important part of the DeFi ecosystem, is also accumulating energy for a new round of DeFi boom through continuous innovation.

The Ecological Landscape of DEX

According to QKL123 data, DeFi’s total lock-in volume was $68.393 billion, with lending platforms Compound and Maker accounting for 16.5% and 16.1% of the total lock-in volume, respectively, and DEX platforms Uniswap and Curve accounting for 15.4% and 10.6% of the total lock-in volume, respectively.

As the DeFi ecosystem continues to grow and business segments expand in response to market demand, DEXs face the dilemma of not being able to meet more specific needs of users. Pain points such as low capital efficiency, infrequent losses, high slippage, high fees, and insufficient incentives have prompted the birth of a number of innovative forms of DEXs.

Bancor

Bancor was the earliest AMM proposer, and its V1 version is similar to Uniswap V1, which requires the use of its platform BNT tokens as an exchange medium in order to trade.

Bancor V2 removes the requirement for two-sided liquidity deposits by pledging one-sided assets through an elastic supply model, utilizes a fixed liquidity reserve, dynamically adjusts AMM pool weights through a prophecy machine, maintains uniformity between internal and external market prices of the pool, and ensures that liquidity providers earn returns while receiving complete impermanent loss protection.

In addition, Bancor provides liquidity insurance for users, who can enjoy liquidity gains in addition to compensation for impermanent losses.

Curve

Curve is a hybrid AMM that combines a constant sum and constant product function to minimize slippage on relatively price-stable assets.

Curve’s assets are exchanged via packaged versions of token assets, such as sUSD and sETH, with no slippage between the two through Synthetix’s collateralized synthetic asset model, and then based on Curve’s own AMM model to complete the exchange of packaged versions of tokens and target tokens.

SushiSwap

Basically continuing the core design of Uniswap, unlike Uniswap which focuses on deep exploration of AMM, SushiSwap is developing towards a multi-faceted financial platform.

This includes trading, lending, options, futures; single vault; token issuance platform; NFT issuance platform and other multiple financial product lines will be promoted together. At the same time, Onsen-based incentives will help SushiSwap to gain long-term positive liquidity.

PancakeSwap

PancakeSwap is a decentralized trading platform based on the BSC of Coinan Smartchain. Compared to Uniswap, Bancor, Curve and ShshiSwap, PancakeSwap users enjoy lower Gas fees and high efficiency on BSC.

In addition, PancakeSwap’s diversified product ecosystem allows for a high level of user attention and engagement.

Uniswap V3’s diversified financial trends

As the leading DEX project, the launch of Uniswap V3 has undoubtedly had a major impact on the ecological development of the entire DEX space.

As mentioned above, the biggest innovation of Uniswap V3 is the “centralized liquidity”, which is its core strategy to solve the problem of capital inefficiency, with the following specific features.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

-Added granularity controls that allow liquidity providers to deploy capital in the most frequently traded intervals, improving capital utilization, reducing trading slippage and maximizing returns.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

Granularity control means increased complexity of transactions, which inevitably leads to increased Gas fees.

After the V3 release went live, many people complained about the high operating costs of V3. CPlusPlus developers stated on Reddit, “The promised reduction in GAS fees for Uniswap V3 has fallen through, and the cost of processing transactions in the Uniswap V3 master network is much higher than V2, consuming 102% more on average than V2. “

Although it seems that the whole network is complaining about the high fees of Uniswap V3, the innovative measure of “centralized liquidity” of Uniswap V3 has brought it a good market response in terms of the first day’s trading performance.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

-The liquidity provider in Uniswap v3 can set up a combination of liquidity for multiple ranges in the same pool, aggregating them into one order book. For example, an LP in an ETH / DAI pool can choose to allocate $100 to a price range of $1,000- $2,000 and another $50 to a price range of $1,500- $1,750.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

-Concentrated liquidity provides greater trading depth, and Uniswap V3 supports interval settings as low as 0.02%. However, the relative cost is more Gas.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

-Active liquidity, if the price of an asset traded in a given liquidity pool moves outside of the LP’s price range, the LP’s liquidity is effectively removed from the pool and stops earning fees. When this happens, the LP’s liquidity shifts entirely to one of the assets, and they end up holding only one of them.

On the one hand, active liquidity is good for making up for impermanent losses, but on the other hand it also means more flexible and versatile trading strategies are required for traders, which undoubtedly raises the barrier of entry to participate in trading.

As of press time, the top four pools in Uniswap V3 lock volume are USDC/ETH, UNI/ETH, ETH/USDT and WBTH/ETN.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

You can see the corresponding rates displayed after each pair, which is another new feature of the V3 upgrade – multiple rates.

Compared to V2’s fixed rates, V3 allows LPs to choose different rates for adding liquidity to assets with different attributes, 0.05%, 0.3% and 1% respectively.

Low-risk pairs such as stablecoins can choose lower rates, while high-risk pairs of non-stablecoins can choose higher rates. Compared to V2’s fixed rates, V3 provides more incentives for liquidity providers to take higher risks. At the same time, for coins with high price volatility, a 1% rate can also achieve the purpose of reducing impermanent losses.

Uniswap V3 Officially Launched, Outperforming V2 on First Day Will It Be the Catalyst for a New Round of DeFi Boom?

In addition, Uniswap V3 incorporates NFTing of LPs with centralized liquidity, range orders and flexible fees tagged in NFT. Currently, Uniswap V3’s NFT is live on OpenSea.

Uniswap v2 is based around the “x*y=k” constant market maker model, where each user must follow a “passive market making strategy”, which means taking a certain level of “impermanent losses”.

Uniswap V3 provides users with “irreplaceable liquidity” through the Visor vault by tagging liquid positions in the NFT. Users can experiment with different revenue rewards based on LP NFTs, including: rewards from liquidity mining, trading to others for income-producing assets, and locking deposits for lending rewards.

Taken together, the centralized liquidity at the core of Uniswap V3 is essentially an innovative form of customized AMM, a more diversified financial service.

Uniswap V3 vs CEX

The launch of this Uniswap V3 version is not only a highly disruptive innovation for the DEX space, but also has a degree of impact for traditional centralized exchanges.

Conclusion

DeFi decentralized finance has features that centralized finance does not have, such as openness and security, but it cannot be separated from the fundamental need for capital financing.

Uniswap V3’s high capital utilization rate is the best expression of capital financing in DeFi at this stage, and it is not limited to transactions, but gives a more diversified financial form, which has a very important impact on the development of DeFi.

However, the chain-based operations need to match the corresponding configuration of the underlying technical facilities, transaction congestion, Gas fees become a key issue that needs to be urgently addressed.

We can see more possibilities for future financial development in the many innovative features of Uniswap V3, and it is believed that the time for Uniswap V3 to trigger the next round of DeFi boom will be right after the completion of Layer2 deployment.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/uniswap-v3-officially-launched-outperforming-v2-on-first-day-will-it-be-the-catalyst-for-a-new-round-of-defi-boom/
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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