Known for being the largest decentralised exchange in the world, Uniswap is a pioneer DEX that runs on the Ethereum blockchain. Uniswap uses liquidity pools and allows anyone to swap between any ETH and ERC-20 token on the platform.
The exchange aims to launch its third upgrade - Uniswap V3 - by 5 May 2021. With the total value locked (TVL) in decentralised finance (DeFi), all eyes are on the protocol as the top DEX transitions into its latest iteration.
What is Uniswap?
Founded by Hayden Adams, who worked under the guidance of Ethereum founder Vitalik Buterin, Uniswap is a decentralised, automated, on-chain liquidity protocol where no centralised party is needed to execute trades. This makes Uniswap a peer-to-peer marketplace with no intermediaries involved.
In November 2018, Uniswap V1 was launched to provide a platform for the exchange of ERC-20 tokens on the Ethereum blockchain. Uniswap V1 served as a proof-of-concept for automated-market-makers (AMMs), allowing anyone to form liquidity pools to collect fees on ETH-ERC-20 pairs.
Later in 2020, V2 brought improvements to the protocol in the form of ERC-ERC pairs, price oracles, flash swaps, technical improvements, new mechanisms to ensure sustainability of the DEX and more.
What To Expect from Uniswap V3
Slated for official launch on the mainnet on 5 May 2021, Uniswap V3’s goal is to make it “the most flexible and efficient AMM ever designed.”
Hayden Adams, inventor of the Uniswap protocol, shared a preview of the stimulator tool that will go live with version 3 of the protocol in a tweet posted on 4 May 2021.
V3 will encompasses three main updates to the network:
1. Concentrated Liquidity
Concentrated liquidity will change the way liquidity providers (LPs) provide liquidity on the exchange.
The upgrade will award liquidity providers with more control over the price ranges their capital (what they stake) is allocated to. This is lucrative for liquidity providers, who will now be able to earn higher capital, with V3 allowing them to provide up to 4000x capital efficiency, compared to V2.
2. Multiple Fee Tiers
An added feature that users can look out for in Uniswap V3 is multiple fee tiers; this will allow users to adjust their risk level when trading volatile assets. This also adequately compensates users for their degrees of risk.
3. Better Oracles
In Uniswap V2, the protocol introduced time-weighted average price (TWAP) oracles - a crucial DeFi infrastructure that has been applied in other popular projects like compound.
The V3 upgrade will see advanced and more efficient oracles, equipped with the ability to calculate any TWAP within the last 9 days. This is done by storing a series of cumulative sums instead of just one.
Lowered Gas Costs: Uniswap V3 will see gas cost savings of ~50%, compared to V2. Costs for calculating TWAPS in external smart contracts will be driven down significantly, as well.
Will Uniswap V3 Affect UNI?
No one can offer definite UNI price predictions, but Version 3 upgrades are likely to be positive additions to the network.
For starters, the introduction of Concentrated Liquidity may incentivise more liquidity providers to participate in the network. With greater efficiency and flexibility, it looks like progress for UNI isn’t slowing down anytime soon.
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All opinions expressed here by Coinhako.com are intended for educational purposes, taken from the research and experiences of the writers of the platform, and should not be taken as investment or financial advice.