In November 2018, Uniswap V1 was launched in the market as a proof of concept. The launch powered the automated market makers (AMMs), which is a kind of exchange that facilitates the pooling of the assets through the market-making strategies. Uniswap V2 was subsequently launched in May 2020, and the revised version came with the newly optimized features, leading to the huge growth in adoption potential of AMM. The popularity of the AMM can be ascertained from the fact that within a year of its launch, the V2 version facilitated a trading volume of over $135 billion.
Uniswap has announced the V3 launch as the company is targeting to introduce the new version to the market on May 5, 2021. The launch will take in the form of an L1 Ethereum mainnet and subsequently be backed by the deployment of L2 within a short time.
Among the most promising features of the Uniswap V3 are concentrated liquidity and multiple fee tiers. The feature of concentrated liquidity is much discussed as it allows the limited partners (LPs) to control the range of prices their capital has been allocated to. The individual investors’ position is aggregated, and the generation of the single pool for the investment takes place. This single-pool is then generated into a curve that can be used for investment purposes. The feature of multiple fee tiers is also an interesting one as it will benefits LPs to get adequately compensated for their individual risk appetite.
Further, the incorporation of the following features has certainly made the latest Uniswap V3 the most efficient and flexible versions of the AMMs available in the market today:
- Provision of having liquidity which is 4000X the total capital efficiency of the Uniswap V2, thereby paving the way for realizing higher returns on the investment.
- Allowing LPs to enhance their exposure to the assets while reducing the overall risk.
- The ability to sell assets in exchange while altering price range through the addition of liquidity.
Besides, oracles on the Uniswap system have become very easy in terms of their integration with the system and can supply the weighted average prices data for the last nine days. This means there is no need to create a checkpoint for the historical values on the new version of Uniswap oracles.