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Uniswap V3: Improve AMM functionality, capital efficiency, transaction fees and price entry mechanism



After months of anticipation, the decentralized exchange Uniswap has finally released its third iteration. In the detailed blog announcement and Uniswap 3.0 white paper released on March 23, Uniswap introduced many explosive new developments, and announced that it will be launched on the Ethereum mainnet on May 5, and the Layer 2 solution Optimism will be launched on May 12 to improve throughput. As the leading decentralized exchange in the DeFi field, Uniswap used some controversial expressions in its blog announcement, saying that this version update will make Uniswap the most flexible and efficient automated market maker in history (Uniswap's reputation is precisely from this). Uniswap is not bragging about itself. Uniswap 3.0 will focus on improving AMM functions, capital efficiency, transaction fees, and price input mechanisms, paving the way for Uniswap to regain its position as the top global decentralized exchange. Unexpectedly, Uniswap deviated from its original intention of open source. In order to prevent malicious competitors such as "vampire" Sushi from continuing to infringe on its intellectual property rights, Uniswap used commercial source code licenses in its version 3.0 code base, and postponed the time for open licensed commercial use to 2 years later. Once the two-year period has passed, Uniswap 3.0's code will be "permanently" open-sourced for use by, or built on top of, the cryptocurrency community. The new license mechanism shows that Uniswap is determined to take all necessary means to defend its innovations in version 3.0 and avoid being crazy copycats like version 2.0. The transaction volume of The MV3 Universe NFT series has increased by more than 500% in the past 24 hours: Jinse Finance reported that OpenSea data shows that the transaction volume of The MV3 Universe series NFTs in the past 24 hours was 142.91 ETH, and the 24-hour transaction volume increased by 554.81%. Ranked 17th in OpenSea. [2022/8/23 12:41:53] In the latest round of bull market, this decentralized platform, which was founded only two years ago, developed rapidly, and its transaction volume once accounted for 20% of the total transaction volume of Ethereum. However, the sudden success has not only caused systemic problems, but also attracted criticism (see below), which needs to be solved in subsequent new releases. Right now, Ethereum is preparing to significantly increase transaction speed, and PancakeSwap and MDEX have surpassed Uniswap to become the world's largest decentralized exchange in terms of transaction volume. This important official announcement of Uniswap was released at the right time, which not only brought new enthusiasm, but also let us see the bright future of DeFi. Decentralized exchanges are seen as one of the accomplices to severe network congestion and sky-high gas fees on Ethereum, as Uniswap 2.0 is currently the number one gas consumer. At present, Ethereum is in the throes of transitioning from a proof-of-work chain to a proof-of-stake chain in its final form. The above-mentioned problems have brought many constraints to the entire Ethereum ecosystem. Grab its market share, users and developers. UNI breaks through the $21 mark with an intraday increase of 5.81%: Huobi Global data shows that UNI rose in the short term and broke through the $21 mark. It is now reported at $21.0052, with an intraday increase of 5.81%. The market fluctuates greatly, please do a good job in risk control. [2021/2/4 18:51:49] So, what is unique about Uniswap 3.0? A white paper co-authored by founder Hayden Adams dives into the intricate details. Before getting to know the Uniswap 3.0 engine further, let’s take a quick look at the main new features of version 3.0: realize centralized liquidity, give liquidity providers "granular control", and allow each liquidity provider to The offered liquidity sets the price range. This is achieved by combining all positions in the liquidity pool to create an aggregated curve for use by traders. Use the fee hierarchy to replace the current 0.3% handling fee to more reasonably compensate the potential risks faced by liquidity providers. By adopting an optimized price input mechanism and saving past price query records, a faster and lower-cost price query can be realized. The custom liquidity range function of Uniswap 3.0 will optimize the operation of automated market makers and order book exchanges, making its capital efficiency increase by as much as 4000 times compared to version 2.0! In 2018, Uniswap 1.0 realized an elegantly designed automatic market maker function with less than 300 lines of code and a simple formula, opening up new possibilities for the DeFi field. Unsurprisingly, Uniswap reached the top in one fell swoop in 2020, becoming the largest decentralized exchange. Compound passed Proposal 026, which will raise the limit of UNI borrowing to 5 million: Today, the DeFi project Compound’s Proposal 026 passed the community vote, with 466,000 votes in favor and 1 against. Will be executed in 2 days. The proposal includes: 1. Increase the loan limit of Uniswap to 5 million; 2. The new Uniswap interest rate calculation model will be adopted; 3. The loan limit will be adjusted through community multi-signature. [2020/10/13] Although the counterfeit project Sushi once shook the status of Uniswap by issuing the governance token SUSHI, Uniswap saved the situation by issuing the native token UNI. Since then, both exchanges and their native tokens have ushered in a period of rapid growth. Unfortunately, high gas fees and impermanent losses have forced some liquidity providers and traders to switch to other decentralized exchanges over the past few months. With the help of version 3.0, Uniswap is expected to go deep into the DeFi field and return to the throne of the world's number one decentralized exchange. Uniswap version 3.0 will provide higher capital efficiency, better risk control measures and more reliable transaction prices, regaining a competitive advantage. If more and more liquidity providers are concentrated on Uniswap 3.0, traders will be the main beneficiaries, because this will reduce transaction fees while increasing liquidity. Uniswap is a decentralized exchange based on the automatic market maker model. Uniswap 3.0 is the latest iteration of the protocol, designed to provide users with greater capital efficiency while giving liquidity providers greater control over capital. Additionally, Uniswap 3.0 has improved the accuracy of the price entry mechanism and introduced fee tiers. New oxygen will be listed on the three major exchanges of Leidun (LOEX), Uniswap, and Rebi on September 8: According to official news, New oxygen will be launched on September 8 and launched on Leidun (LOEX) , Uniswap, and Hotcoin. Through the development of the underlying public chain of the game, New Oxygen uses blockchain technology to create a blockchain game ecological platform that can break through the pain points of the current game industry. It organically integrates DeFi + radar technology mining + 2.0 new way of joining a group, and its original new way of joining a group of 5 people adopts a double reward mechanism, that is, no matter how many users succeed in joining a group, all users participating in the group will get NOE rewards. [2020/8/19] With these new features, Uniswap can help liquidity providers achieve higher returns on capital. Unlike previous versions, Uniswap 3.0 reduces price slippage and downside risk. Uniswap's price input mechanism also optimizes the implementation of time-weighted average price (TWAP), making its integration and use faster and cheaper. The gas fee of Uniswap 3.0 will also be much lower than version 2.0, because Optimism, an Ethereum-based Layer 2 solution, will soon be deployed on Uniswap after version 3.0 is released. The three major additions to Uniswap are centralized liquidity, fee tiers, and an optimized price entry mechanism (Oracle). Centralized liquidity allows liquidity providers to bind the assets they provide to a certain price range. That is to say, in version 3.0, liquidity providers can set a price range for the liquidity they provide. Uniswap's 24-hour trading volume reached 53 million US dollars, and the top two trading volumes were DAI and USDC: Uniswap announced that during this period of severe volatility in the cryptocurrency market, Uniswap's 24-hour trading volume reached 53 million US dollars, and the top 10 trading volume tokens are DAI, USDC, MRK, SAI, LINK, BAT, WBTC, SNX, KNC, and sUSD, which means that Uniswap has passed the stress test, which proves that Uniswap has no problem handling a large amount of increased load. [2020/3/15] In version 2.0, the capital provided by liquidity providers is all pooled together and provided to traders without being limited by the price range. If someone wants to set a price range for the liquidity they provide, the only option is to create a new liquidity pool. This liquidity pool is not always profitable as it entails high gas costs and the risk of impermanent losses. Centralized liquidity allows providers to gain a superior experience, better control their risk exposure, and improve their capital efficiency. In version 2.0, the transaction fee is set to 0.3%. Version 3.0 introduced multiple fee levels, namely 0.05%, 0.3% and 1%. This new fee structure is designed to allow liquidity providers to set an acceptable level of risk for the liquidity they provide. Liquidity providers can choose between high-risk uncorrelated token pairs and correlated token pairs, and receive appropriate compensation for taking these risks. In addition, UNI's governance model can add more fee levels, or modify fee levels through community voting. Uniswap 3.0 improves the performance of the TWAP price entry mechanism, making price inquiries faster and less expensive. We only need to initiate an on-chain request to easily obtain the average price through the TWAP price input mechanism. All TWAPs calculated within the 9 days prior to the request are available for quick access. The reason why Uniswap 3.0 can do this is because it stores past price inquiry records, and does not need to set "checkpoints" as before. Through this function, users can also easily integrate the input mechanism of other indicators besides the average price. Uniswap 3.0 can even provide an input mechanism for trading indicators such as exponential moving average (EMA) or simple moving average (SMA). Uniswap 3.0 will no longer issue homogeneous ERC-20 tokens to represent the positions of liquidity providers. Instead, it will offer non-fungible tokens (NFTs) to represent liquidity provider positions. The Block reported that Uniswap has admitted that a small disadvantage of 3.0 is that liquidity provider tokens cannot be interchanged. However, we can still convert shared positions into homogeneous tokens through external contracts or other bridging agreements. In addition to these new features, Uniswap 3.0 will no longer automatically perform transaction fee reinvestment for liquidity providers. In the future, the Uniswap team expects to tokenize complex market strategies such as transaction fee reinvestment, lending, and long positions. The development of Uniswap 3.0 is underway and is scheduled to go live on the Ethereum mainnet on May 5. The smart contracts of Uniswap 3.0 will be deployed on multiple testnets first, because the interface, API and other functions are still being updated. Liquidity providers of version 2.0 will be able to use the Liquidity Provider Migration Portal once the new version is live. At the beginning of DeFi's rise, EtherDelta was the only well-known Ethereum decentralized exchange. However, EtherDelta failed to attract a large number of users due to its poor user interface and user experience, and low liquidity (not enough to meet the trading needs of the vast majority of tokens on the list of supported tokens). Then came the Uniswap 1.0 protocol, which aims to realize a functional decentralized exchange through liquidity pools and automatic market makers. After it went online in November 2018, the Uniswap protocol started to work well, but then encountered some problems, such as price feed manipulation. Users can also only exchange ERC 20 tokens for Ether. Uniswap 2.0 introduces WETH to support a larger transaction pool and realize transactions between any ERC 20 token pairs. In addition, it has added a price input mechanism to the system to enhance decentralization, provide optimal token quotes, and prevent price manipulation. The success of Uniswap 2.0 has spawned new decentralized exchanges such as 1inch, Sushi, and PancakeSwap. These decentralized exchanges have added new features and innovations based on Uniswap 2.0. Despite its tremendous growth, Uniswap 2.0 has lost market share among decentralized exchanges. As of April 12, 2021, Uniswap 2.0 ranks second among global decentralized exchanges, second only to PancakeSwap (Binance Smart Chain). Due to the increasing complaints from users, in order to improve its trading platform, Uniswap has developed version 3.0, which is scheduled to be launched on the Ethereum mainnet on May 5. The upcoming Uniswap 3.0 version has greatly improved the model of decentralized exchanges, allowing liquidity providers to obtain higher rates of return and adjust risk exposure for more efficient risk management. On the other hand, traders can achieve higher capital efficiency.


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