At the end of March, Uniswap Labs released the highly anticipated Uniswap V3 protocol. At its core, it introduces the concept of “concentrated liquidity”, which enables liquidity providers (LPs) to make markets within a customized price range and create personalized price curves in the process. The design promises to be 4,000 times more capital efficient for LPs, enabling LPs to provide the same depth of liquidity as V2 in a specified price range with much less idle capital.
Two months later, on May 5th, Uniswap V3 finally went live, and within the first two weeks it was a huge success. In just 3 days, Uniswap V3 became the top decentralized exchange (DEX) on Ether after Uniswap V2, and in the last 7 days, V3 achieved over $6.5 billion in trading volume. See the chart below.
Above: Weekly trading volume (in billions of dollars) of the major DEXs on Ether for the week ending May 16. Source: Messari & Dune Analytics
In fact, Uniswap V3 is so successful that it is quickly approaching Uniswap V2 in terms of trading volume, and at the current rate of growth, it will likely surpass V2 by the end of May.
Above: Uniswap V3 volume as a percentage of V2 volume growth trend as of May 16. Source: Messari & Dune Analytics
Perhaps most notable behind Uniswap V3’s rapid volume growth is the capital efficiency achieved by V3 as it grows: V3 is coming close to achieving the same volume as Uniswap V2, while V3’s total locked-in volume (TVL) is less than 15% of V2’s. Currently, V3 is the only AMM (Automated Market Maker) with a volume to total lock ratio over 100%, and is over 5 times more capital efficient than Uniswap V2, which has the second highest volume to total lock ratio in the Ether DEX. See chart below.
Above: Uniswap V3 is overwhelmingly the most capital efficient DEX, with data for the week ending May 16.
Several of the most popular pairs (liquidity pools) on Uniswap V3 are very similar in terms of capital efficiency. In particular, the trading volume of stablecoin pairs on V3 is comparable to the 3Pool pool on Curve (DAI+USDC+USDT), while the former’s TVL is only a fraction of the 3Pool TVL: $1.65 billion is locked up in Curve’s 3Pool, while Uniswap V3’s USDC/USDT and DAI/USDC pairs have a combined locked TVL of only $125 million.
At the time of writing, the 24-hour volume of 3Pool on Curve reached $265 million, while the combined volume of USDC/USDT and DAI/USDC pairs on Uniswap V3 reached $198 million. For these pairs, Curve’s 24-hour volume to TVL ratio was 16%, while Uniswap V3’s 24-hour volume to TVL ratio was 158%. See comparison chart below.
Above: 7-day volume, 24-hour volume and TVL data for each pair on Uniswap V3. Source:Uniswap Analytics
Above: TVL, liquidity usage (16.04%) and daily volume for 3Pool (DAI+USDC+USDT) on Curve. Source: Curve.fi
Uniswap’s Growing Dominance
The success of Uniswap V3 combined with the continued dominance of Uniswap V2 has now increased Uniswap’s market share to a new high of 61% in 2021, and Uniswap’s market share has been growing in 2021. See the following chart.
Above: Market share trends for the major DEXs on Ether since 2021, with Uniswap’s market share having grown to 61%.
This growth coincides with another spike in DEX trading volume. In the first 16 days of May, all of Ether’s DEXs almost reached their highest monthly trading volume ever, which was set last month. For the quarter, these DEXs are on track to exceed $123 billion in volume, almost double the volume of April.
Above: Monthly growth trend in transaction volume for all DEXs on Ether combined since May 2020.
This growth also comes at a time when some DEX competitors are releasing new protocol upgrades of their own. The theme of each DEX protocol is capital efficiency, and each team is addressing this through a variety of different approaches. For example, SushiSwap’s upcoming upgrade, Deriswap, will introduce a new AMM that combines trading, lending, futures and options into a single protocol.
For example, Balancer’s upcoming upgrade, Balancer V2, will introduce a single Vault that will hold all assets deposited in different liquidity pools, which not only reduces the cost of trading Gas across multiple liquidity pools (a pain point of Balancer V1), but also allows Balancer to increase capital efficiency through “Asset Managers”, i.e. these “Asset Managers” will allocate idle assets from Balancer’s liquidity pools to These “asset managers” allocate idle assets from the Balancer liquidity pool to other agreements (e.g., Aave) to earn revenue.
Whether these capital-efficient alternatives resonate better with the market will be determined in the coming months. In any case, Uniswap V3 is just getting started and will continue to improve in the meantime. Other Token project parties have not yet begun to offer incentives for LPs on V3, users are just getting familiar with V3’s parameters, and protocols for managing passive LP strategies are not yet available, not to mention that Uniswap V3’s upcoming deployment to Optimism (the L2 network) may push transaction volumes even further.
But one thing is clear now: Uniswap V3 is a huge success.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/uniswap-v3-successfully-fired-the-first-shot-and-is-about-to-overtake-v2/
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