Uniswap v3 hopes to reinvent its DEX, while others see a different path for DeFi

Decentralized exchange Uniswap and its governance token, UNI, have defied all expectations in recent months, and the world’s largest DEX has recently logged a total of cumulative transactions that surpasses the $ 10 billion threshold. It’s more, Uniswap’s 24-hour transaction volume is currently estimated to be around $ 2.3 billion.

Hayden Adams, CEO of Uniswap, has tweeted recently on this milestone and has even posted a graph showing a 25.7% weekly increase in Uniswap’s weekly transaction volumes. It should be noted that if the platform is able to maintain its current rate of entry and exit, it will be able to process a whopping 500,000 million dollars in transactions in the next 12 months.

Uniswap’s growing popularity seems to stem from the fact that It allows investors looking to dabble in various DeFi projects and other few well-known cryptocurrencies quite easily, which may not be available through popular centralized exchanges like Binance or Coinbase.

As a result, Uniswap’s native token offering has also been on the receiving end of some serious monetary pull. For example, since the beginning of the year, the value of the token has gone from 5 dollars to about 40 dollars, which represents an increase of 8 times in a matter of four months.

Even the DeFi market seems to be on a roll at the moment, with data showing that around $ 67 billion is currently locked in on various DeFi platforms. In fact, this figure was even higher a week ago. However, due to the recent market-wide correction, which has caused some $ 300 billion of accumulated cryptocurrency to disappear almost overnight, the number has fallen again.

Will Uniswap v3 be a game changer?

According to a statement on April 21, Uniswap has taken a further step towards launching the latest iteration of its platform, called v3, on all Ethereum testnets, and the mainnet launch is scheduled for May 5. More specifically, v3 core and periphery smart contracts have been deployed on Ethereum Ropsten, Rinkeby, Kovan and Goerli testnets.

In terms of what this latest revision entails, Uniswap will now make use of the concept of “capital efficiency”, thus potentially complicating the passive income aspect of its liquidity provision for many casual DeFi investors. Commenting on the update, Brandon Iles, co-founder of crypto protocol Ampleforth, told Cointelegraph:

“I think the v3 design is a natural progression from a philosophical point of view. It will be interesting to see how (or if) other platforms respond in turn. I hope this is the point where Uniswap and other MMAs start to diverge. This means more diversity in space, and that’s a good thing. “

Other enhancements include a multi-fee system that allows liquidity providers to be compensated for assuming varying degrees of risk. In addition, there are now three different commission levels per pair based on their expected volatility: 0.05%, 0.30% and 1.00%, which, on paper, helps offer better protection against impermanent losses. for liquidity providers.

By last, v3 also introduces tangible enhancements to Uniswap’s current market makers automated linking curves, which group individual positions into a single set to form a combined curve that users can trade.

Not everyone is convinced of v3

While many they look like To be praising Uniswap v3, Sergej Kunz, co-founder of DEX 1inch aggregator, told Cointelegraph that compared to v2 and most other automated market makers, the new version has become a specialized instrument that caters more to creators of sophisticated market rather than amateur liquidity providers, adding:

“The flip side of increased capital efficiency is the complexity of liquidity provision and management. Since the Flashbots service launched MMAs became the target of sandwich attacks, the Uniswap v3 design remains vulnerable to this problem. “

When asked about UNI’s meteoric growth – something that has put the token in the top 10 of the rankings by market capitalization – Kunz opined that although UNI’s rise looks really good, these types of governance tokens do not really have any intrinsic value beyond providing owners with the option to participate in certain governance related matters.

He also noted that teams contributing to the Uniswap core are releasing new features and updates through the use of “commercial licenses.” Kunz said: “To be honest, this approach is not aligned with the spirit of decentralized finance.“.

Is the current wave of DeFi ready to grow?

Despite the Ethereum network’s steep gas fees – with Uniswap exchanges currently costing users around $ 21 per transaction – most DEXs have continued to attract large trading volumes. In this regard, Fernando Martinelli, CEO of Balancer – a programmable liquidity protocol – told Cointelegraph:

“An increasing number of users are joining DeFi, and this is especially driving growth in the MMA space. MMAs act as the crucial underlying layer of liquidity for DeFi products and services, and the market seems I’ve been getting this lately. This growth benefits the ecosystem as a whole, including Uniswap. “

He also noted that since Balancer intends to release v2 of its native protocol with a totally new set of features, these options will be considerably different from what Uniswap v3 offers. “Both will benefit DeFi users with greater capital efficiency. Uniswap v3 has taken a very different direction than Balancer v2, which is good for the space as a whole“he added.

Although many were eagerly awaiting version 3 of Uniswap, it appears that the update has not delivered as promised. For example, Although founder Adams had promised to silence critics by releasing an update that would make the platform’s AMM protected against impermanent losses and super efficient, v3 actually seems to make impermanent losses worse.

This is because the mechanism relies heavily on the concept of “concentrated liquidity”, which basically allows liquidity providers to choose the price ranges in which they feel comfortable committing liquidity, rather than covering the entire range of zero. to infinity.

Another powerful drawback of v3 is that it no longer has pool tokens. Instead, the protocol now uses non-fungible tokens to represent a user’s particular position, which is a hit to “composability” that would render concepts such as Aave’s Uniswap markets or Maker’s pool token vaults unusable.

Although v3 makes it difficult for users to avoid slippage issues and use reserve tokens, it seems quite likely that the platform developers will take these sticking points into account when tweaking the system in the future, fthus enabling new entrants to explore the DeFi landscape much more easily.

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