In 2020, the popularity of Uniswap v2 is unprecedented for the DeFi protocol, and decentralized exchanges seem to be at the center of a new financial revolution. In terms of volume, Uniswap first equaled and then surpassed the major trading platforms, having tried and emulated its own success countless times.
The third version, launched on May 5, introduces a new model that combines the limit order book used by traditional trading platforms with an automated market maker (AMM) formula, a design that brings greater capital efficiency and better flexibility in providing liquidity.
In exchange, the liquidity provider must take an active role in the protocol. uniswap v2 allows users to provide liquidity for the entire trading portfolio. The latest iteration adds a feature called concentrated liquidity and limits prices to a specific part of the price spectrum.
As a result, users must compete to remain profitable. Following its launch, users of the decentralized exchange saw a surge in the number of users, with about 9,500 LPs migrating to the new iteration. However, according to data provided by The Block, this metric has declined after the hype died down.
Using the Uniswap v3 model, fewer LPs have the ability to participate in the race to provide useful liquidity, however, they can take advantage of the capital efficiency of the protocol. In the second iteration, the liquidity provided for some pairs (e.g. stablecoins pairs) is not used.
Uniswap v3 allows users to customize the price range in which they wish to provide liquidity. Most likely, they will put it in the most useful range. Therefore, they earn fees for 100% of their capital in this useful price range.
Uniswap v3 acquires more advantages in the DeFi segment, and Uniswap v3 places greater demands on LPs by providing them with new tools, a combination of passive/active strategies, future integration with L2 extension solutions, optimistic Rollups, and more interoperability with other protocols.
Data from Block research suggests that Uniswap v3 has been more successful in attracting liquidity from pairs that prefer asset liquidity. In less than two weeks, the third iteration took over the market share of WBTC/ETH, USDC/ETH, and UNI/ETH in terms of trading volume. Trading pairs with lower interest rates and liquidity, such as FEI/ETH, performed better in terms of trading volume in Uniswap v2.
In addition, Uniswap v3 can provide better trading for pairs between stablecoins and tokens due to its efficiency. This study predicts that over time, these trading pairs will dominate and will play a greater role in the future of the exchange.
Further data show that within a few weeks Uniswap v3 accounted for 80% of the trading volume of the second iteration and exceeded 10% in terms of liquidity. The latter is concentrated on the market price of trading pairs, with Uniswap v3 having a lower decline rate (0.49%) than v2 (0.81%). These indicators seem to be trending upwards, suggesting that the third iteration is achieving its goals.
Despite the difficulty of the rollout, Uniswap v3 is still a work in progress. lPs, users, and market makers are still experimenting and familiarizing themselves with its capabilities and features. data from The Block suggests that the migration is slow and happening. As the protocol evolves and matures, it will integrate features and operate with the broader ecosystem in Ether to facilitate more user engagement.
Mika Honkasalo and Larry Cermak, authors of The Block study, were invited to participate in episode 65 of Amber Group’s Crypto Unstacked podcast power. the researchers delved into the features of decentralized transactions, new models, benefits, new LP pass features, and more.
Regarding the future of the new iteration, Cermak predicts that Uniswapv3 will surpass v2 in terms of capacity.
Cermak says, “Eventually, it will happen, and it’s also important to remember that Uniswap is pushing people relatively hard to migrate if they automatically switch to Uniswap v3 now, unless you want to switch to v2.”
The Block’s research was presented by Amber Group, a leading international provider of crypto financial services. The company aims to create long-term value for its clients and has built on research and academic tools such as Amber Academy and the popular podcast Crypto Unstacked.
Its in-depth research on the latest protocols, major crypto companies, trends and innovations has proven to be a useful tool for investors. The research conducted on Uniswap v3 is essential to grasp the true scope, limitations, capabilities, opportunities and potential of the Ether ecosystem to support a new global financial system.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/what-exactly-does-uniswap-v3-bring-to-defi/
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