The leading automated market maker Uniswap v2 goes live on Ethereum to offer more concentrated liquidity, which will evidently attract more liquidity than before. It is an upgrade that will make the platform more attractive to cryptocurrency funds and traders with deep pockets.
Currently, Uniswap that appeared on the Ethereum Network in late 2018 is the fourth-biggest DeFi application, according to DeFi Pulse, with over $7 Billion in assets. According to the data by the company, Uniswap V2 accrued a total of $1.6 Billion in trade volume on the last day.
The company planned to launch v3 in late March but pushed it to this month which fortunately coincided with the crypto bull run that boosted ETH to an all-time high. ETH, as we know, is the second-largest cryptocurrency and the native token for Ethereum Network, responsible for the introduction of DeFi in the crypto ecosystem.
What can you expect with Uniswap V3?
The chief innovation that users will observe with Uniswap V3 is a process called concentrated liquidity. This feature will improve the functionality of AMM globally. An AMM market allows participants to deposit two tokens into their preferable liquidity pool. Then the pool will decide the price of the two tokens, and the final price given to the users will be the ratio of the two tokens.
To purchase or sell tokens from AMM pools, users generally have to pay a small fee for each trade shared between the pool’s depositors. However, this method can leave a lot of liquidity unusable as the ratio can kick the price of the original token to a much higher price making the trade unprofitable.
In concentrated liquidity, the liquidity provider can define a band for trading the deposits. This limits the maximum and minimum trading value of the token, minimizing losses and liquidity wastage. Also, the depositors can define variable fees for trading, making the platform more attractive for tokens that are traded less frequently.
Clearly, Uniswap v3 has some exciting new upgrades that will attract more investors and liquidity providers in search of better rewards.