Understanding Eight Key Points of Uniswap V3
Uniswap officially released the V3 white paper on 24 March, and plans to launch the V3 version based on Ethereum’s layer 1 network on 5 May, followed by the Layer 2 version deployed on Optimism.
The V3 version mainly updates the following eight key contents, according to the description of the white paper:
1. Centralized liquidity
It allows liquidity providers (LPS) to inject liquidity into a certain price range to increase the trading depth and reduce slippage, so as to improve capital utilization efficiency.
In the V2 version, LPs provide shares according to liquidity and evenly distributes service fees, but in the V3 version, LPS can choose to inject liquidity near the final price to obtain more service fees with less funds.
V3 version is obviously friendly to stablecoin trading. For volatile asset trading, the choice of price range is a difficult problem. Once the price is out of the specified range for a long time, LPs will not be able to obtain service fee bonuses. In addition, the service fee income in the extreme market will be far less than the arbitrage loss. Therefore, the official reminds users that they can use part of the funds to inject liquidity, and the other part to hedge the downside risk or invest in other projects to generate income.
2. Multi-rate, more pools per pair
The fixed-rate of 0.30% is changed into three levels: 0.05%, 0.30% and 1.00%. LPs are allowed to set up three pools of different fees for each trading pair. For example, low-risk trading pairs such as stablecoin can choose low rate, while high-risk transaction pairs such as unstable coin can choose the high rate.
3. NFT of LP token
LPs can choose different price ranges to inject liquidity, the risk level of LPS is also different. The V3 version of LP Token will no longer be based on ERC-20, but will become NFT Token.
4. Scope of Order
The main idea is to allow users to put pending orders in a certain price range of the specified trading pair. When the price enters the range, it will gradually start the deal. When the price goes out of the other end of the range, the deal will be completed. It can be simply understood as the gradient pending orders.
5. Improved Oracle
It is not that Uniswap will introduce oracle itself, but it improves the quality of oracle service provided by Uniswap to external protocols, making integration easier and cost lower.
6. Deploying the Layer2 version of Optimism
As the leader of DEX and even the whole DeFi track, the market has always held a high expectation for the V3 version of Uniswap. However, the V3 version seems to be not brilliant enough or fails to fully meet the market expectations in terms of the update details disclosed in the early morning. It was excited when the DeFi leader’s AAVE released the V2 version. However, there is no amazing feeling this time.
UNI’s price performance also indirectly proves this point. When the V3 version announcement was issued, UNI’s price once hit a record high of 36.869 USDT, but it went down in the following hours, according to OKEx. As of 10:30, UNI was quoted at 30.1 USDT, down 9.22 percent in 24 hours.
7、Software Business License
The Uniswap V3 core code will be protected by the Business Source License (BSL) copyright and will be restricted from improper commercial use within two years. This also makes Uniwap the first to use the DeFi protocol to adopt the code licensing mechanism. This may be related to the fact that Sushiwap copied the whole project code last year and the locked amount once exceeded that of the project.
Uniswap indicates that its copyright protection restrictions can be changed through protocol governance, and the copyright protection can be transferred from BSL to GPL protocol (open-source software) in advance through governance.
8、Contract review and loophole reward
At present, the contract of Uniswap V3 has passed the audit certification of Trail of Bits, ABDK and samczsun, and the audit report has been published in the GitHub warehouse-project. Uniswap has also released a loophole reward, with a maximum bonus of $500,000 for anyone who discovers a major loophole over the next 30 days.
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