News

Uniswap V3: Everything We Know About the Future of the DeFi DEX

Lincoln Murr

Summary: Uniswap, the premier decentralized exchange on Ethereum, has been hinting about an upgraded version of their platform for many months. They plan to add lots of new features in order to ensure that they continue to be the top DEX, including greater scalability, cheaper transactions, and direct competition against centralized exchanges. Since its launch in ...

Uniswap, the premier decentralized exchange on Ethereum, has been hinting about an upgraded version of their platform for many months. They plan to add lots of new features in order to ensure that they continue to be the top DEX, including greater scalability, cheaper transactions, and direct competition against centralized exchanges.

1611512657421940.png

Since its launch in 2018 at Devcon 4, Ethereum’s yearly developer conference, Uniswap has been a staple in DeFi. It allows for anyone to trade ERC20 tokens and Ethereum in a completely decentralized manner, no KYC needed. Initially, Uniswap V1 was a simple automated market maker protocol, in which users could put funds into a liquidity pool, and receive trading fees from people who use the platform. For example, someone could put 1 ETH and 1000 USDT into a liquidity pool, and every time a transaction was made using ETH and USDT, that liquidity pool provider would get a small piece of the total transaction cost. This was revolutionary in the decentralized exchange sector, and quickly gained lots of traction. However, the technology was still nascent and more of a proof-of-concept than a final product.

1611512902301855.png

Graph of liquidity on Uniswap V1

In March 2020, Uniswap V2 was released, and it offered many benefits over its predecessor. These improvements included: greater price accuracy using oracles, which helps make the DEX manipulation-resistant, and flash swaps, which are incredibly useful for DeFi traders looking to capitalize on arbitrage, along with plenty of minute changes which increased efficiency and security. One of the most significant changes made was the beginning of the implementation of a Decentralized Autonomous Organization, or DAO, that will control the future of the protocol. This paved the way for the release of their governance token, UNI, which was airdropped to users of the exchange in September 2020. The token helped propel Uniswap to having upwards of $3 billion locked into their platform, which made it the biggest project in DeFi.

Even though Uniswap already sounds like they have a completed project and are ready to cash in on their hard work through their UNI token, the project is far from finished. There are many significant problems plaguing the network. One of these is the extremely high transaction fees during Ethereum congestion, which can sometimes reach upwards of $100. This makes the platform practically unusable for anything except the largest trades. Additionally, competitors like Sushiswap, which clone Uniswap’s code and create their own exchanges, have been responsible for Uniswap losing lots of value. These attacks are called "vampire mining," since the cloned exchanges attempt to suck the liquidity out of the original protocol. These attacks on Uniswap result in greater fees for users and more volatility for liquidity pool providers. 

Screenshot 2021-01-24 123400.png

Uniswap V3 has been teased since Summer 2020, and was supposed to have officially announced their technology updates by the end of the summer. However, due to reasons we can only speculate about, the team has yet to release any concrete information, other than tweets and teasers. However, these tweets give insight into how the protocol plans to reclaim its position as the number one DeFi project. 

The first feature expected for Uniswap V3 is faster and cheaper transactions through the utilization of a layer 2 scaling solution. In October of 2019, Uniswap created a demo exchange, which shows how Optimistic Rollups can scale transactions. It has the potential to offer fees for less than a penny and transaction times less than a minute. The demo is no longer working, which could be a sign that Uniswap is preparing to bring this to their main platform.

1611512747740933.png

Another feature which has been mentioned by the protocol’s founder, Hayden Adams, are more efficiencies, which will lower fees even more for users. This means that Uniswap V3 has the potential to compete with centralized exchanges like Binance, and has the possibility to undercut them on fees.


unnamed.png

A side effect of all these improvements is that V3 will be incredibly technically complex. As a result, Adams claims it will be much more difficult to fork. This will be a positive for Uniswap, as more of the liquidity will stay with their platforms, as opposed to moving to other clones.

pasted image 0 (1).png

At the moment, the release date of Uniswap V3 is anyone’s guess. There is lots of speculation, but no concrete dates or time frames. The only true piece of news about the launch date was that Adams wanted to release information before the end of Summer 2020, but this window has been missed entirely. In all likelihood, the V3 launch will follow a similar cycle of V2, which means that a blogpost and testnet version will precede the mainnet launch. So, as soon as a testnet version is released, the mainnet will be a month or two away. The most likely time for release is sometime in the first half of 2021, since it was near enough to release last summer that Adams was almost ready to make an announcement.

Having a quick, cheap, and decentralized option to trade any ERC20 token will be massive for the decentralized finance movement. Right now, the only people who can realistically use decentralized exchanges are those with enough money to not care about a $100 transaction fee. When the fees go back to being pennies per transaction, tens of millions of users will be allowed back into DeFi and capable of joining the financial revolution.

One side effect of this opening of DeFi will be greater total value locked, or TVL, in Uniswap. This means that more people will be putting their money into the liquidity pools and getting a return. With more value inside Uniswap, the governance token, which effectively controls this money, will also become more valuable. Another side effect will be greater interest in the governance aspect of the UNI token. Theoretically, holders of the token could vote to receive a share of the fees made by the Uniswap exchange, thus increasing the value of the token and offering a dividend for holders. 

Unfortunately for other smart contract platforms, a usable Ethereum will degrade some of their use-case. The biggest argument for switching to EOS, Tron, or NEO is that they offer cheap and fast transactions, something Ethereum cannot do. However, when Uniswap is capable of this, there will be less need to use other platforms. The money that was in these smart contract platforms will come back to Ethereum, and it will further solidify its place as the king of smart contracts. 

Even though Uniswap V3 has yet to be officially announced, the Ethereum and Uniswap communities are eager for its release. It will offer cheaper transactions, fast confirmation times, and a viable alternative to exchanges like Binance and Coinbase. Through these upgrades, Uniswap can expect to be at the forefront of DeFi, and be a pioneer in the space for years to come.

By Lincoln Murr

Last Update:

Tags: ,,,
Link: Uniswap V3: Everything We Know About the Future of the DeFi DEX   [Copy]
  • The Future of Blockchain: How Modularity is Revolutionizing the Industry 15 hours ago
  • Parallelized EVMs: The Solana Killer? 5 days ago
  • Bitcoin: The Ultimate Memecoin? 9 days ago
  • Memecoin Mania: Is it Here to Stay or Should You Avoid? 10 days ago
  • LayerZero vs Wormhole vs Axelar vs Chainlink: What’s the Best Interoperability Protocol? 13 days ago
  • You need to login to comment.