LPs in more stable pools will likely provide liquidity in particularly narrow ranges. This requires taking on more price risk (”impermanent loss”) while supporting greater amounts of trading and earning higher fees. Instead of providing equivalent liquidity depth as a v2 LPs with less capital, v3 LPs can choose to provide greater depth with the same amount of capital as their v2 counterparts. Bob can use his additional $816,500 to hedge against downside exposure or to invest in any other conceivable strategy. However, Bob will have lost just $159,000, versus Alice’s $1m. Both Alice and Bob’s liquidity will be entirely denominated in ETH if the price of ETH falls to $0. While Alice has put down 5.44x as much capital as Bob, they earn the same amount of fees, as long as the ETH/DAI price stays within the 1,000 to 2,250 range.īob’s custom position also acts as a kind of stop-loss for his liquidity. He keeps the other $816,500 himself, investing it however he prefers. He deposits 91,751 DAI and 61.17 ETH, worth a total of about $183,500. She deposits 500,000 DAI and 333.33 ETH (worth a total of $1m).īob instead creates a concentrated position, depositing only within the price range from 1,000 to 2,250. The current price of ETH is 1,500 DAI.Īlice decides to deploy her capital across the entire price range (as she would have in Uniswap v2). In doing so, LPs construct individualized price curves that reflect their own preferences.Ĭoncentrated liquidity allows LPs to provide greater depth in fee generating price ranges.Īlice and Bob both want to provide liquidity in an ETH/DAI pool on Uniswap v3. In Uniswap v3, LP’s can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. Additionally, traders are often subject to high degrees of slippage as liquidity is spread thin across all price ranges. V2 LPs only earn fees on a small portion of their capital, which can fail to appropriately compensate for the price risk (”impermanent loss”) they take by holding large inventories in both tokens. As an example, the v2 DAI/USDC pair reserves just ~0.50% of capital for trading between $0.99 and $1.01, the price range in which LPs would expect to see the most volume and consequently earn the most fees. For most pools, a majority of this liquidity is never put to use. In Uniswap v2, liquidity is distributed evenly along an x*y=k price curve, with assets reserved for all prices between 0 and infinity. For a deeper technical overview check out the Uniswap v3 Core whitepaper, the Uniswap v3 Core smart contracts.
Transactions made on the Optimism deployment will likely be significantly cheaper!
This removes the need for integrators to checkpoint historical values.Įven with these groundbreaking design improvements, the gas cost of v3 swaps on Ethereum mainnet is slightly cheaper than v2. V3 oracles are capable of providing time-weighted average prices (TWAPs) on demand for any period within the last ~9 days. Uniswap’s oracles are now far easier and cheaper to integrate. LPs can sell one asset for another by adding liquidity to a price range entirely above or below the market price, approximating a fee-earning limit order that executes along a smooth curve LPs can significantly increase their exposure to preferred assets and reduce their downside risk LPs can provide liquidity with up to 4000x capital efficiency relative to Uniswap v2, earning higher returns on their capitalĬapital efficiency paves the way for low-slippage trade execution that can surpass both centralized exchanges and stablecoin-focused AMMs
These features make Uniswap v3 the most flexible and efficient AMM ever designed: Multiple fee tiers, allowing LPs to be appropriately compensated for taking on varying degrees of risk Individual positions are aggregated together into a single pool, forming one combined curve for users to trade against We are targeting an L1 Ethereum mainnet launch on May 5, with an L2 deployment on Optimism set to follow shortly after.Ĭoncentrated liquidity, giving individual LPs granular control over what price ranges their capital is allocated to. Today, we are excited to present an overview of Uniswap v3.
Uniswap now serves as critical infrastructure for decentralized finance, empowering developers, traders, and liquidity providers to participate in a secure and robust financial marketplace. Less than one year since its launch, v2 has facilitated over $135bn in trading volume, ranking as one of the largest cryptocurrency spot exchanges in the world. In May 2020, Uniswap v2 introduced new features and optimizations, setting the stage for exponential growth in AMM adoption. Uniswap v1 was launched in November 2018 as a proof of concept for automated market makers (AMMs), a type of exchange where anyone can pool assets into shared market making strategies.
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