Uniswap v3 has arrived! See what’s new on the popular DEX and how the update is being used so far.
Last week, a new unicorn appeared on the crypto scene as Uniswap unveiled version 3.0 of its popular decentralized exchange on Wednesday, May 5.
The market has been eager for this new version of Uniswap, and the time of the launch is seemingly fortuitous, as v3 makes its debut in the middle of a bull run for the DeFi space. So what does v3 mean for you?
Let’s take a look.
What’s New on Uniswap V3
So, what does v3 bring to the table, and why is it here?
The latest update to the exchange was announced in March of this year and promises several upgrades and improvements. It’s the first time Uniswap has been upgraded since version 2.0 was launched in March 2020, following up on the initial version of Uniswap, which launched in late 2018.
The most notable improvements packed into v3 are concentrated liquidity and multiple fee tiers.
Concentrated liquidity offers individual liquidity providers increased control over price ranges. Those positions are then aggregated together into one pool, allowing users to trade against one combined curve. Multiple fee tiers, meanwhile, allow liquidity providers to be more fairly compensated for the level of risk they take on.
What does this mean for Uniswap users?
V3 also allows LPs to trade assets by adding liquidity to a price range entirely above or below market price, which allows them to impose a fee-earning limit executing along a smooth curve. Improved capital efficiency, meanwhile, also allows for improved low-slippage trade execution when compared to centralized exchanges and stablecoin-focused automated market makers.
In its blog post, Uniswap also noted that “the gas cost of v3 swaps on Ethereum mainnenet is slightly cheaper than V2,” while the cost of those made on the Optism deployment will “likely be significantly cheaper.”
What’s Happened So Far
Uniswap v3 has been live for roughly a week, and already, we’re beginning to see the impact of these updates on the exchange.
“There are indeed billions in virtual liquidity because the liquidity is so concentrated in particular bands, so there are high fee earners and a small amount of liquidity.” Stone said. “That means you can make a lot more money on v3 while supplying less than in v2.”
Liquidity providers, meanwhile, are already seeing fees start to climb. According to Flipside’s data, as of Monday, May 10, the top earner had already collected more than $3.6 million in fees, while number two had earned nearly $3 million.
There were also five other LPs that earned more than $1 million in fees within just a few days of v3 going live. That, Stone said, was not entirely surprising due in large part to the fact that v3 is “much more concentrated” than its predecessor, meaning that those who have large pre-existing balances and can quickly adjust their positions are set up for success on the updated platform.
“It doesn't make sense to be in there unless you have a ton of money already,” he said. “The fees are higher on v3, but to really tap into those fees, you have to specify a very narrow target and adjust it often, which can be costly.”
So what comes next?