Uniswap V3 Offers Far Higher Exposure, Lower Risk For Staking
Uniswap V3 offers unprecedented capital efficiency, 4000 times greater than the previous version.
Key Takeaways
- Uniswap V3 launches on Ethereum on May 05 and later on Optimism, where fees will be significantly cheaper.
- Gas fees will be slightly reduced on the main network.
- User capital will go 4000 times farther, allowing for liquidity stakers to potentially earn much more with lower risk attached.
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Uniswap has revealed an overview of V3 of the DEX which is due to launch on May 5, described by Uniswap as “the most flexible and capital-efficient AMM ever designed.” V3 will also launch separately on the L2 Optimism solution.
User Capital Now Goes 4000 Times Farther
Uniswap accounts for 20% – 25% of all daily transactions on the Ethereum network, and V2 has handled $135 billion in volume in the year since its launch.
DeFi users have flocked to the DEX giant to stake their capital and earn rewards, and in May, they will be able to significantly raise their exposure with lower downside risk.
V3 introduces concentrated liquidity and multiple fee tiers, allowing liquidity providers (LPs) control over the price ranges their capital is allocated to as well as compensation rising with higher risks taken by LPs.
“By concentrating their liquidity, LPs can provide the same liquidity depth as v2 within specified price ranges while putting far less capital at risk.”
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Uniswap v3’s groundbreaking new feature is Concentrated Liquidity positions
Rather than being required to allocate capital across the entire price spectrum from 0 to infinity, each LP is given full control over what price ranges they wish to provide liquidity to pic.twitter.com/AOCm340YI9
— Uniswap Labs 🦄 (@Uniswap) March 23, 2021
LPs will be able to provide capital with up to 4000x capital efficiency compared to V2, offering low-slippage trade execution superior even to centralized exchanges, according to the announcement.
Is Uniswap V3 Cheaper to Use?
With gas fees near all-time highs, retail users have been squeezed out of Uniswap along with all other Ethereum protocols in recent months, with individual transaction fees north of $70.
The new updates were mostly focused on trade execution and capital efficiency, rather than reduced fees, as fees will ideally be reduced and stabilized by upcoming scaling solutions for the Ethereum network.
However, the Uniswap announcement states that V3 will come with “slightly” cheaper gas fees along with the other features. Transactions made on the L2 Optimism deployment, however, will be “significantly cheaper!”, according to the Uniswap team. Uniswap oracles will also be cheaper and easier to integrate.
While fees will remain high by historical levels for the near term, the new update is nevertheless a game-changer for the staking community.
Advancements such as these in Ethereum-based DeFi could well spell the beginning of the end for competing efforts being built on Binance Smart Chain and other networks.
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