Today I would like to introduce to you what improvements have been made in this V3 version.
The first and most important improvement is the addition of "aggregated liquidity" that can be controlled at a granular level, which can greatly improve the utilization rate of funds. It turns out that the formula used by AMM is a simple "XY=K" curve. If we use the grid trading analogy, the upper limit of grid trading is infinity and the lower limit is 0. For most fund pools, most of the liquidity is not used, which is a great waste of LP funds.
For example, if you say this: the price of Bitcoin will fluctuate between US$1 and US$100,000. Please sell high and buy low to control risks. This is correct, but useless!
An example is given on their official blog. In the V2 version, the DAI/USDC trading pair only reserves about 0.50% of funds for transactions between $0.99 and $101, but the vast majority of DAI/USDC transactions Happened at this price.
That is to say, in the DAI/USDC fund pool, for LPs, this is a great waste of funds, and 99.5% of the funds are idle.
The "aggregate fluidity" controlled by granularity can greatly improve this situation.
For example, the current ETH is 1500U, but in the ETH/USDT trading pair, the current LP price range is 0~infinity, and now users can add liquidity for any segment, you can add a segment of 200~500, you You can also add a section of 600~1800.
The advantage of this is that if Zhang San and Li Si want to provide liquidity in the ETH/USDT pool of Uniswapv3. Each of them has $100,000. The current price of ETH is 1500U.
Zhang San's strategy is to deploy funds across the entire price range. He deposited 50,000 USDT and 33.33 ETH, with a total value of 100,000 US dollars, while Li Si's strategy was to only deposit LP within the price range of 1,000 to 2,250. He deposited 91,75USDT and 6.117ETH, worth about $183,50 in total. He keeps the remaining $81,650 for himself.
Here we see that even though Joe invested 5.44 times more than John, they earn the same amount of fees as long as the price of ETH/USDT stays within the 1000-2250 range. This is equivalent to that you can improve the utilization rate of funds according to your own strategy, which is equivalent to the fact that before our shopping was packaged and sold, we gave you all the useful and useless ones, but now you can only choose what you need.
Other improved functions include multi-level rates and range order functions. V3 provides three levels of rates for LPs, which are 0.05%, 0.30% and 1.00%.
Through these settings, different fee rates can be set according to the size of the risk. For example, a fee rate of 0.3% is set for ETH/USDT transactions, and 0.05% for USDC/DAI is fine. Other currency prices with large fluctuations can be set to 1%.
The order range means that individual xtokens can be deposited within a custom price range above or below the current price, and if the market price enters their specified range, they sell xtokens in exchange for ytokens along a smooth curve, while in the process Earn maker fees. Depositing a custom price range is similar to a traditional limit order.
Then there is another point that is quite different from the V2 version, that is, the generated LPtoken may be NFT, because users can provide liquidity in different price ranges, then your position in this range will be directly made into a specific NFT to determine your ownership.
Of course, if you want to mint NFT on the chain, the gas fee will still be relatively high. It depends on whether Layer 2 of Optimism can really solve the problem of gas fee, or how much it can be reduced.
Another interesting thing is that UNI has also changed its software license this time. Within two years, commercial or production-level applications cannot directly use Uniswap V3 code.
A practical financial writer who went from nothing to a real "get"
A practical financial writer who went from nothing to a real "get"
