Uniswap (UNI) v3, the new highly anticipated version of the popular decentralized finance (DeFi) platform on Ethereum (ETH), is now live:
Uniswap is a decentralized cryptocurrency exchange (DEX) and a so-called automated market maker (AMM), which means that prices are based on an algorithm instead of buy and sell orders. Users provide liquidity by locking ERC-20 tokens and others can borrow them by paying interest to the liquidity providers (LP).
Uniswap v3 aims to make the exchange of tokens much more efficient. The trading platform introduces three new functions for this. The most important is “concentrated liquidity.” This allows an LP to determine in which price range or range their deposits are traded.
Thus, larger amounts of liquidity can be offered at a desired price. This lowers the risk and increases the return. Reportedly, this will make DeFi more attractive to the whales, aka the big investors.
LP positions can be concentrated in a single pool, which is then “tokenized” as a non-fungible token (NFT). Uniswap founder Hayden Adams reports that he is the proud owner of the first v3 NFT:
In addition, v3 introduces flexible fees, or more fee levels, so that traders can determine their risk for volatile assets. Finally, so-called oracles, services that provide pricing data to the platform, are becoming cheaper, faster and easier to use.
Despite the high expectations for v3, the launch will not be accompanied by fireworks. This is reflected in the UNI rate that is 5% negative today and according to DeFiLlama and DeFiPulse, the total value locked (TVL), or the total locked amount, in the platform is also down today.
This may be due to the fact that many parties have not yet switched from v2 to v3. Also, the launch of layer-2 scaling solution Optimism and Ethereum update EIP-1559 should give a big boost to Uniswap v3 by further reducing costs. These are planned for the summer.