Yerevan (CoinChapter.com) — The decentralized finance (DeFi) exchange Uniswap plans to launch its robust new V3 protocol on May 5. This upgrade promises to help the company gain lead among Decentralized exchange platforms and provide a leg up for Uniswap’s native token UNI.
Background before Foreground
Uniswap launched its decentralized exchange in November 2018 atop the Ethereum blockchain. It is a proof-of-concept for Automated Market Makers (AMM). So typically, the platform relies on Ethereum’s fluctuating gas fees to stay in business.
Notorious for running dramatically higher, Ethereum gas costs led the Uniswap developer to introduce V3 to cut down its dependency on the second-largest blockchain. That becomes excessively necessary as trading volumes atop the Uniswap exchange keeps on rising — it has facilitated $135 billion worth of traders so far, the highest among the decentralized exchanges.
UNI’s rate directly correlates to Uniswap’s performance as a decentralized trading platform. As the number of retail and institutional investors continues to grow, the token’s overall bias remains bullish for the future. Therefore, the Uniswap team needed to find alternatives to process transactions atop its platform speedily and cheaply.
Is Uniswap V3 a Promising Update?
Uniswap is now one of the most efficiently emerging AMM protocols. According to many analysts, including Messari Researcher Rahul Rai, the upgraded version could bring capital efficiency and better trade execution quality to the project overall.
V3 proposes to achieve it through new features called “concentrated liquidity” and multiple fee tiers. In retrospect, it enables liquidity providers (LPs) to make markets within customized price ranges, creating individual price curves in the process.
“LPs can now specify the price range over which they want to provide liquidity (e.g., DAI/ USDC $0.99-$1.01), which is implemented on the back-end by dividing the price curve into small buckets (called “ticks”). Each tick essentially acts like a mini-AMM with its own set of LPs. This significantly increases capital efficiency for LPs.”said Mr. Rai.
All of such individual LP positions get aggregated into a single pool. It forms one combined curve that users trade against, with no gas costs increase per LP. The said contributors receive their fees at a given price range based on the amount of liquidity they provide.
“Overall, Uniswap V3 is a significant improvement to AMMs and will likely have far-reaching implications,” added Mr. Rai.
UNI is maintaining a bearish bias, as the price has declined 20% since April 15. The token is now trading around $31. V3 is promising to change that trajectory, with trades anticipating a bull run towards $50 after the protocol’s launch.