Long Beach (CoinChapter): Uniswap announced they are targeting an L1 Ethereum mainnet launch for its V3 update on May 5. An L2 deployment on Optimism set to follow shortly after.
The V3 update will be introducing concentrated liquidity as well as multiple fee tiers. Concentrated liquidity gives individual LPs granular control over what price ranges their capital is allocated to. Individual positions will be aggregated together into a single pool, forming one combined curve for users to trade against.
The multiple fee tiers will allow LPs to be appropriately compensated for taking on varying degrees of risk. Uniswap claims these new features will make V3 the most flexible and efficient AMM ever designed.
With V3 LPs can provide liquidity with up to 4000x capital efficiency relative to Uniswap v2. In other words, users will earn higher returns on their capital. Additionally, capital efficiency paves the way for low-slippage trade execution that can surpass both centralized exchanges and stablecoin-focused AMMs.
LPs will significantly increase their exposure to preferred assets and reduce their downside risk. LPs can also sell one asset for another by adding liquidity to a price range entirely above or below the market price. This will approximate a fee-earning limit order that executes along a smooth curve.
Paradigm co-founder Matt Huang seemed on board with the update, calling it ‘particularly elegant’ in a twitter post. “It preserves the permissionless, always-available peer-to-contract aggregated liquidity that makes Uniswap magical,” Huang noted. “While also allowing you to simulate any arbitrary AMM curve, including strategies more akin to a conventional order book.”
Uniswap V3 Will Make Oracles Easier & Cheaper
V3 will make Uniswap’s oracles much easier and cheaper to navigate. They are now capable of providing time-weighted average prices on demand for any period within the last ~9 days. This removes the need for integrators to checkpoint historical values.
Despite the vast design improvements, the gas cost of v3 swaps on Ethereum mainnet is slightly cheaper than V2. Furthermore, transactions made on the Optimism deployment will likely be significantly cheaper than V2.