Why is Uniswap V3 a double-edged sword?

Uniswap Labs stated that since its launch in November 2018, its cumulative monthly transaction volume has reached a milestone of $5 trillion . Millions of users have directly entered the market. In the past three years, users have paid more and more attention to the transparency, security, autonomy and reliability of DEX.

According to DappRadar data, the total lock value TVL of Uniswap v2 and v3 is US$9.5 billion. This year Uniswap launched on Optimism and Arbitrum 2 versions Layer, the reason is because the Ethernet Square costs soaring. Uniswap Labs stated that its total scale of US$2 billion was provided by Optimism and Arbitrum deployments, and these new deployments are beginning to receive significant attention.

Uniswap v3 starts to work

According to data from blockchain data provider Nomics, Uniswap v3’s transaction volume on Arbitrum soared to a record high of $82 million. Uniswap became the first DeFi platform to generate $1 billion in fees. This is not surprising. Uniswap’s governance token Uni is still relatively flat in trading volume and performance.

Uniswap V3 obviously hasn’t really exploded on Layer 2. This is an early opportunity, you don’t expect to get to the sky in one step. As more ERC20 tokens are deployed, we will see more trading pairs. In the future, we can see more liquidity protocols and cross-chain protocols deployed in Uniswap V3.

So far, the UX of Uniswap V3 is pretty good, and it will get better with the improvement of the wallet and front-end. As time goes by, each batch of transactions increases, and the cost will drop. In general, Uniswap usually conducts 100,000 to 150,000 transactions, because the gas cost is 90% cheaper.

Why is Uniswap V3 a double-edged sword?

Everyone is a market maker

In fact, Uniswap is often at the forefront of innovation, especially for automated market makers (AMM). Automated market makers are the cornerstone of DeFi. To understand how revolutionary these are, we must first understand the market operation in traditional finance.

Market makers provide assets at two prices, one is the seller and the other is the buyer. It profited from the difference between these two numbers. The actual business of a market maker is not price: it is the greater the trading volume, the higher the profit. Due to the large number of single assets required, only institutions can become market makers in the traditional financial sector. Even popular brokers like Robinhood rely on market makers to provide sufficient liquidity.

As a market maker, you have an undeniable advantage, and the invention of AMM in DeFi has also changed the rules of the game. Suddenly, everyone can become a market maker. Any liquidity provided to facilitate transactions reduces the offer spread, reduces slippage, and earns fees for the liquidity provider (LP).

The most prominent design is the liquidity pool: whether the LP has invested millions of dollars in the pool or only a few thousand dollars. The level of LP participation is proportional, and no one is excluded from the market. By automating the market making process, AMM provides fair opportunities for all market participants.

Is Uniswap V3 courting centralized institutions?

The core function of Uniswap V3 is the “custom liquidity” range, allowing users to connect AMM with traditional order books. This frees up the passive capital stored on AMM, makes it easier for assets to be deposited in the pool, and helps guide long-tail liquidity. In addition to helping low cap/batch tokens guide liquidity, Uniswap V3 enables users to convert their passive capital into active charging assets. It also provides higher capital efficiency and range orders, non-interchangeable liquidity and flexible charging tiers. Wait for new features.

Uniswap is the leader of DeFi. The launch of v3 is reminiscent of Silicon Valley’s marketing strategy. Uniswap has indeed attracted great attention to v3, but it also shows that the governance of the protocol has become centralized. The community has never participated in the production of V3. No one has the opportunity to raise any reasonable concerns about the new system.

In addition, Uniswap announced that it will not reallocate any fees to UNI holders. It is also important to note that Uniswap has received significant investments from some investors in Silicon Valley. Many well-known venture capitals are the main stakeholders of Uniswap. These investors represent a considerable part of the UNI token, and therefore, they hold the key to the governance of one of the most valuable DeFi projects.

Veteran DeFi minimizes deviation from governance

The latest version of Uniswap has extremely high capital efficiency and, technically speaking, represents an incredible innovation in the field of AMM. But it also raises an important question: To what extent has the progress of protocol efficiency surpassed the importance of bottom-up governance, community building, and protection of the interests of ordinary users?

The v3 version of Uniswap is one of the most obvious signs of this trend change. Although anyone can see the code used by Uniswap, it is now protected by copyright for the next two years. Open source code has always been one of the reasons for the exponential growth of DeFi, but for Uniswap, this phase is over.

Of course, the potential of Uniswap V3 has not yet been exploited. Passive, simple liquidity positions still dominate, and most positions are managed in a discretionary, unoptimized manner. This gap provides an excellent opportunity for the new V3 agreement to build an automated on-chain strategy to help actively manage liquid assets, thereby democratizing market opportunities for daily DeFi users. These agreements are critical to the success of Uniswap itself.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/why-is-uniswap-v3-a-double-edged-sword/
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