Uniswap – the popular automated market-maker (AMM) – has finally revealed the specific details around their long-awaited v3 upgrade coming on May 5th.
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🦄 Today we are thrilled to present a detailed overview of Uniswap v3, the most flexible and capital efficient AMM ever designed!
🏃 Mainnet launch is scheduled for May 5, with a scalable Optimism L2 deployment set to follow soon afterhttps://t.co/NTekDxWVA8
— Uniswap Labs 🦄 (@Uniswap) March 23, 2021
The main innovation that V3 brings is a new concept referred to by the Uniswap team as “Concentrated Liquidity positions”.
“Rather than being required to allocate capital across the entire price spectrum from 0 to infinity, each LP is given full control over what price ranges they wish to provide liquidity to.”
This effectively means that liquidity providers are able to provide liquidity in custom ranges that they can tweak on an ongoing basis, like limit orders but for providing liquidity. Custom liquidity ranges enable greater capital efficiency and the potential for sophisticated LPs to earn the same amount of fees with just a fraction of the underlying capital.
If the market price moves out of an LPs custom range, their liquidity rebalances to 100% of the lower value asset, removing the potential of sustained impermanent loss. Pool creators in Uniswap V3 will also be able to set flexible fee tiers: between 5bps, 30bps, and 100bps.
So far the theme of V3 seems to be extreme capital efficiency, but with one notable tradeoff (or feature – depending on how you view it). Unlike Uniswap V2 and most other AMMs today, Uniswap V3 will discontinue the use of fungible LP tokens and replace them with LP NFTs. This seems to break some of the DeFi composability that LP tokens enjoy today and the various liquidity mining programs that rely on Uniswap. That said, the V3 announcement does mention partners that could convert LP NFTs back into fungible ERC-20 tokens.
Uniswap TWAP’s oracles have also received a technical upgrade making them cheaper and more efficient to use than ever before.
Other than significant protocol upgrades, V3 also differs from prior versions of Uniswap due to its licensing. Get more details on the V3 upgrade by reading the original blog post.
“Uniswap v3 Core will launch under the Business Source License 1.1—effectively a time-delayed GPL-2.0-or-later license. The license limits use of the v3 source code in a commercial or production setting for up to two years, at which point it will convert to a GPL license into perpetuity.”
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Business Development and Operations at TrustToken – TUSD. Jack is a startup generalist and DeFi enthusiast. Stay connected with him by following @HHJackSun on Twitter.