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

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The decentralized exchange Uniswap and its governance token, UNI, have defied all expectations in recent months, with the world’s largest DEX recently recording cumulative transaction totals exceeding the $ 10 billion threshold. Additionally, Uniswap’s 24-hour trading volume is currently estimated to be around $ 2.3 billion.

Hayden Adams, CEO of Uniswap, was Tweeter about the milestone recently and even released an accompanying chart showing a 25.7% weekly increase in Uniswap’s weekly trade volumes. It should be noted that if the platform is able to maintain its current rate of entry / exit, it will be able to process a whopping $ 500 billion in transactions over the next 12 months.

The growing popularity of Uniswap seems to stem from the fact that it allows investors looking to get started with various decentralized finance projects and other obscure cryptocurrencies, which may not be available through popular centralized exchanges such as fairly easy. than Binance or Coinbase.

As a result, Uniswap’s native token offering has also been the target of serious monetary pull. For example, since the start of the year, the token has risen in value from $ 5 to around $ 40, showing an 8x increase in just four months.

Even the DeFi market appears to be on a roll at the moment, with data showing that around $ 67 billion is currently locked in various DeFi platforms. In fact, that number was even higher just a week ago. However, due to the recent market correction – which saw an estimated $ 300 billion in cumulative crypto value wiped from the market almost overnight – the figure has declined again.

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Will Uniswap v3 be a game-changer?

According to an April 21 release, Uniswap has taken another step towards launching the latest iteration of its platform called v3 on all of Ethereum’s test networks, with the mainnet launch slated for May 5. were deployed on the Ethereum Ropsten, Rinkeby, Kovan and Goerli test networks.

In terms of what this latest overhaul entails, Uniswap will now use the concept of “capital efficiency”, potentially complicating the passive income aspect of its liquidity provision for many occasional DeFi investors. Sharing his take on the upgrade, Brandon Iles, co-founder of the Ampleforth cryptocurrency protocol rebase, told UKTN:

“I think the design of v3 is a natural progression philosophically from where they are. It will be interesting to see how (or if) other platforms react in turn. I think that’s when Uniswap and other MAs start to diverge. It means more diversity in the space, and that’s a good thing.

Other improvements include a tiered fee system that allows liquidity providers to be compensated for taking varying degrees of risk. Additionally, there are now three separate fee levels per pair based on the expected volatility of the pair – 0.05%, 0.30%, and 1.00% – which, on paper, helps deliver better impermanent loss protection for liquidity providers.

Finally, v3 also brings tangible upgrades to Uniswap’s existing automated market maker binding curves, which aggregate individual positions into a single pool to form a combined curve that users can trade with.

Not everyone is sold on v3

While many seem to be renting Uniswap v3, Sergej Kunz, co-founder of DEX 1inch aggregator, told UKTN that compared to v2 and most other automated market makers, the new version has become a specialized instrument that is more geared towards sophisticated market makers and hobbyist liquidity providers, adding:

“The other aspect of greater capital efficiency is the complexity of providing and managing liquidity. Since the launch of the Flashbots service, AMMs have become the target of sandwich attacks, the design of Uniswap v3 is still vulnerable to this issue. “

Asked about the meteoric growth of UNI – something that got the token into the top 10 in the market capitalization rankings – Kunz felt that while UNI’s rise looks really good, these governance tokens don’t ‘have little intrinsic value other than providing homeowners with the option. to participate in certain governance issues.

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He also pointed out that Uniswap’s core contribution teams are releasing new features and updates through the use of “commercial licenses”. Kunz said, “To be honest, such an approach is not in line with the spirit of decentralized finance.”

Will the current wave of DeFi grow?

Despite the high Ethereum network gas fees – Uniswap exchanges currently costing users around $ 21 per trade – most DEXs continued to attract high trading volumes. In this regard, Fernando Martinelli, CEO of Balancer – a protocol for programmable liquidity – told UKTN:

“More and more users are integrated with DeFi, which particularly stimulates growth in the AMM space. AMMs act as the crucial underlying liquidity layer for DeFi products and services, and the market seems to understand this more recently. This growth benefits the ecosystem as a whole, including Uniswap. “

He also pointed out that as Balancer looks to launch its native protocol v2 with a whole new set of features, those options will be significantly different from those offered by Uniswap v3. “Both will benefit DeFi users with improved capital efficiency. Uniswap v3 took a very different direction than Balancer v2, which is good for the space as a whole, ”he added.

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While many have been eagerly awaiting Uniswap v3, it looks like the upgrade may have been under-delivered. For example, even though founder Adams had promised to silence the critics by rolling out an update that would make the impermanent AMM platform loss-proof and super efficient, v3 actually seems to make impermanent losses worse.

Indeed, the mechanism relies heavily on the concept of ‘concentrated liquidity’, which essentially gives liquidity providers the power to choose the price ranges in which they are comfortable committing liquidity – instead of hedging. the whole range from zero to infinity.

Another major 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, thus dealing a blow to the “composability” that would instantly render concepts like Aave’s Uniswap markets or chests. Unusable Maker Pool Tokens.

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While v3 prevents users from avoiding slippage issues and using pool tokens, it seems highly likely that the platform’s developers will take these issues into consideration when looking to modify the system over time. future, thus making it easier for new entrants. explore the DeFi landscape much more easily.