One small step for Uniswap, one giant leap for DeFi x NFT

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One small step for Uniswap, one giant leap for DeFi x NFT

星球君的朋友们

2021-05-07 07:31

本文约3490字，阅读全文需要约14分钟

Every version upgrade of Uniswap drives the upgrade of the entire DeFi.

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TL;DR

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1. Uniswap V3 brings NFT into mainstream financial applications.

2. Every version upgrade of Uniswap drives the upgrade of the entire DeFi.

3. Uniswap V3 has taken a key step in NFT financial applications.

4. NFT has strong descriptive ability and is suitable for expressing complex and changeable financial contracts.

5. ERC721 is just a starting point for Financial NFT, and it will never be the mainstream.

6. Mainstream Financial NFT must have two specialties, one is descriptive, and the other is splittable.

7. If digital currency is programmable money, then Financial NFT is automated money, smart money, and a general tool to help parties establish contracts and promote collaboration.

8. Financial NFT gives users the power to create various financial instruments.

10. There will be a batch of DeFi-specific Financial NFT projects.

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On May 5, Uniswap V3 was officially launched. Among the many new functions, the official is most proud of the ability to support liquidity providers (LP) to specify price ranges for market making (hereinafter referred to as "range market making") (Figure 1-3). This ability not only greatly improves the capital utilization rate of LP, but also reduces impermanent losses. It is indeed a major innovation in the AMM field. From this, people will see the great potential of NFT in financial applications.

Figure 1. Designated to make a market in the $250-$12,000 price range

Figure 2. Designated to make a market in the price range of $0.960-$1.040

Figure 3. Comparison of V2 and V3

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In November 2018, Uniswap V1 realized Vitalik's idea of an automatic market-making exchange, and freed the entire DeFi from the dogmatism of rigidly copying the CeFi model, and began to take an independent route. In May 2020, V2 allowed free addition of trading pairs, which directly inspired the DeFi boom that continues to this day. What is the industry significance of this release of V3? I think it is to stimulate the application innovation of Financial NFT. Once NFT is widely used in financial applications, a huge new map will be opened.

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03. Uniswap V3 has taken a key step in NFT financial applications

In the V2 era, this contract is represented by ERC20, and there are only differences in the number of shares between different LPs, and the terms of the contract are the same. In the V3 era, this contract is represented by ERC721, so that different LPs can set different market-making terms.

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04. NFT has strong description ability and is suitable for expressing complex and changeable financial contracts

Many people like to argue, insisting that this matter does not have to use NFT, he can still do it with ERC20, I will give an incomplete example here to see how unreliable this statement is. For example, singers A and B both buy tickets for a concert in Beijing, and the concert ticket is actually a contract between the organizer and the audience. The trouble with the ticket contract is that it is complex and variable. The concert tickets of singer A are different from those of singer B. The tickets for tonight are different from those for tomorrow night.

In short, in the ERC20 model, as long as the conditions on the ticket are slightly different, it is of course absurd to set up a company to print the ticket. The NFT model is much more reasonable. You only need to open a ticket company to print different tickets for different concerts, different seat levels, and different special conditions. All the differences are reflected in the ticket, instead of opening a lot of short-lived companies just for a little bit of difference, the cost will naturally be greatly reduced.

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05. ERC721 is just a starting point for Financial NFT, and it will never be the mainstream

ERC20 puts too much emphasis on commonality. Everyone of the same kind must be exactly the same as each other, and nothing special can be tolerated. It is extremely beneficial to financial calculations and liquidity, but it is extremely unfavorable for describing complex contract conditions. ERC721 puts too much emphasis on individuality, and feels that any two things in the world are completely different, and there is no analogy, regardless of the fact that there are "similarities" and "types" in the world. It is very descriptive and calculable. Extremely poor, and the liquidity is naturally extremely poor. Both are too extreme, too idealistic. The mainstream financial instrument tokens in the future will be neither ERC20 nor ERC721.

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Only strong descriptiveness can express advanced financial contracts, and the cost is low enough. Only when it can be split can a number of tokens of the same quality be fissioned, and the prices of each other can be cross-referenced, so that they can be calculated and have good liquidity, which eliminates ERC721. The vNFT standard we proposed in Solv is designed to meet the needs of Financial NFT, and has both the computability of ERC20 and the description ability of ERC721.

Figure 4. vNFT combines the advantages of ERC20 and ERC721

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In contemporary society, people cooperate with each other mainly by establishing contracts. Money is really just a tool to enable people to cooperate with each other. The main factor that hinders collaboration is transaction costs. A large part of transaction costs is spent on contract creation, negotiation, signing, and supervision and implementation. A large part of this is due to the current money being too "stupid" . In fact, the greatest value of digital currency is that it can be programmed, and the program can be executed rigidly and without compromise. But after all, not everyone knows how to program, and it is still inconvenient for ordinary people to use it. Financial NFT is a higher level than digital currency. It is an automatic, smart money with built-in operating logic. Financial NFT encapsulates many common money transaction models and circulation rules, making it easy for ordinary people to use. With a powerful Financial NFT, it will be easier for people to conclude transactions, allowing for greater and more efficient mutual collaboration.

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In the past, if you wanted to trade some kind of contract, you had to wait for the bosses to make a decision to design the product, make it, approve it, and put it on the market. Now, with Financial NFT, any ordinary user can create various financial instruments. Once this power is returned to users, it means financial liberation. And all the meaning of DeFi comes down to the word "liberation". DeFi is actually a redistribution of rights. It is not a technological innovation, engineering miracle, or black magic. It is an adjustment of production relations. So what did DeFi do? It is to liberate the creation rights of financial instruments from CeFi and return them to ordinary users.

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After the rise of Financial NFT, various users will create a variety of digital financial tools in a short period of time to optimize resource allocation, or manage risks, or speculate and gamble. Users who have gained creative freedom will make endless innovations under the temptation of practice.

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10. There will be a batch of DeFi-specific Financial NFT projects

DeFi projects that attempt to directly copy traditional finance have always been lukewarm. For example, DeFi projects such as bonds and options have attracted a group of traditional financial experts. They are full of confidence and bring mature products and experience in traditional finance to the market. DeFi is coming, but the things produced often cannot attract DeFi players. On the contrary, there are many, many projects that are completely conceived from DeFi, and they are often unexpected and achieve great success. I believe the same is true for Financial NFT. DeFi will also develop a period of subversive barbaric growth. The LP NFT in Uniswap V3 has no precedent in traditional finance. It is completely conceived and created in specific practice. Such innovation has a greater chance of success.