What You Need to Know About Uniswap
Understanding Uniswap & V4
GM, this is your Daily Bolt briefing.
Everyone’s talking about Uniswap v4, and all the changes it will bring, including:
Hooks
Onchain Limit Orders
MEV Profit Share with LPs
& more…
In today’s edition, we're providing you with an abridged breakdown report. This briefing includes a selection of some of the most important data points from our project breakdown on Uniswap, released last week for our premium members. As information is released, we’ll be updating our breakdown to reflect the changes to come with v4.
Also; learn more about our latest product below. Introducing Project Snapshots, reports released by our team aimed at giving you an unbiased perspective on a project’s performance every month. Project Snapshots offers insights on protocol performance, key metrics, native token trends, locked tokens, major governance outcomes, and other important news. It's an essential resource for informed decision-making in the crypto space. You’ll hear more on Snapshots soon…
Over and out.⬇️
Chains
Uniswap currently has 3 versions, as V1 and V2 will continue to work as long as Ethereum exists. However, V1 and V2 are only available on the Ethereum Mainnet, while V3 is available on the following chains:
Ethereum
Polygon
Optimism
Arbitrum
Celo
BNB Chain
It is assumed that more liquidity will continue to be drawn towards V3 over time.
As of June 15, 2023, there is a total of around $3.72B in TVL across all 6 chains, with the majority being on the Ethereum chain, followed by Arbitrum, Polygon and Optimism.
There are also proposals to expand Uniswap to the following chains:
It is unknown how exactly Uniswap v4 will roll out in regards to being present on different chains.
Tokens
The $UNI token is an ERC-20 token deployed on the Ethereum mainnet to propose and vote on changes to the protocol.
According to the initial $UNI allocation on September 16, 2020, the distributions were as follows:
60% of the initial 1 billion $UNI minted at Genesis would be given to community members at 600,000,000 $UNI
15% of that is claimable immediately at that point.
43% retained by the governance treasury to distribute on an ongoing basis through contributor grants, community initiatives, liquidity mining, and other programs.
21.266% to team members and future employees with 4-year vesting at 212,660,000 $UNI
18.044% to investors with 4-year vesting at 180,440,000 $UNI
0.69% to advisors with 4-year vesting at 6,900,000 $UNI
Supply Schedule
Apart from the initial 1 billion minted at Genesis, there is a perpetual inflation rate of 2% per year that starts after 4 years, ensuring continued participation and contribution to Uniswap at the expense of passive UNI holders.
Economics
Sector Outlook
Uniswap V3 was launched with a business license that expired in Q1 2023. This allowed Uniswap to take advantage of being the only protocol able to offer concentrated liquidity for some time. As time went by, since external protocols could not fork the codebase, they were forced to come up with their own solutions for concentrated liquidity, such as Trader Joe’s liquidity book. Now that the license has expired, anyone can fork and implement their own copy of the AMM engine, however, Uniswap has already managed to achieve network effects and get a first-mover advantage on its unique offering.
Above is a table comparing some of the attributes and offerings of Uniswap vs top competitors.
CEX vs DEX
A centralized exchange (CEX) offers cryptocurrency exchange services to registered users. Its primary service typically matches buyers and sellers with an order book, though a CEX may offer its verified users various crypto products. For beginners, a CEX provides the simplest way to get started without needing in-depth knowledge of blockchain infrastructure and tools.
A decentralized exchange (DEX) uses on-chain smart contracts to run its exchange services. In most cases, users swap tokens from liquidity pools, with liquidity provided by other users in exchange for swap fees.
CEX
The following are the pros and cons of using a CEX.
User-friendly – CEXs tend to have better user-friendliness, with detailed guides ranging from account setting up, to troubleshooting.
Support and protection – Customer support is usually available, and users do not have to bother with gas fees or smart contracts vulnerabilities. In the event of a funds dispute or an error in the transaction, there is a higher chance of reclaiming these funds.
Liquidity – There tends to be the largest liquidity in the top CEXs, making it better for users transacting in large amounts.
Vulnerability to attacks – As CEXs are centralized, they become easy targets for attacks by malicious actors, including hacks or denial of services.
Transaction fees – There are many fees in the usage of CEXs, including transaction fees, currency conversions, etc.
No custody of assets – When using a CEX, you must deposit your crypto into its wallet. This means you relinquish custody of your funds by entrusting them to the CEX. As such, you may be unable to withdraw them whenever you please. This is problematic if an exchange becomes insolvent and can lead to you losing your funds entirely. This situation is similar to storing your cash with a bank — during a run on the bank, you may not be able to access your funds.
DEX
The following are the pros and cons of using a DEX.
Custody of funds – When using a DEX, you never lose custody of your funds until a trade or interaction is complete. This means you can move and store them as you wish. If your crypto is stored in a wallet whose seed phrase only you can access, you have total control over your assets. To decentralization advocates, this is one of the most critical factors.
Data protection and privacy – When using a DEX, there’s no need to supply personal, identifying information and trust it to be stored securely. This means your personal data is safe from bad actors who want to steal your identity. Note that when using an exchange, you are still bound by local regulations and laws.
Lower barriers to entry – Using a DEX requires only a wallet and some crypto to trade and pay gas fees. This makes DEXs highly accessible to a larger group of people globally. For decentralization fans, this is a huge benefit, and many value the more private nature of a DEX. Of course, this should also be considered in the context of local legislation, as well as relevant debates on crypto regulation.
Complex to use and enter – For a first-time user, understanding how to navigate and use a DEX can be challenging. Gas fees, liquidity pools, wallets, and slippage are all possible hurdles to overcome. It takes time to grasp how a DEX works confidently and to invest responsibly, you should always understand your tools.
Lack of fiat on and off ramps – Historically, buying your first coin or token was one of the most significant barriers to gaining crypto exposure. CEXs now, as a standard, offer credit and debit card options for buying crypto. Although some DEXs are beginning to offer this service with third-party providers, most still don’t allow credit or debit card usage.
Liquidity struggles – DEXs, on average, have smaller volumes and less liquidity than large CEXs. Market depth can be smaller, and large trades on a DEX may have a more significant price impact than if done on a CEX. Traders or investors making large volume orders can often find a better price doing over-the-counter (OTC) trades or using a CEX with deep order books.
Timeline
With all of our project breakdowns, our coverage also comes complete with timelines, end-to-end lists of the significant events in a project's history. Here’s some key events for Uniswap in 2023:
June 13: Uniswap v4 is announced. New features include:
Hooks that enable new possibilities for pool customization including fee adjustments and new order types.
Onchain Limit Orders
Customized onchain oracles
TWAMM (Time Weighted Average Market Maker)
Flash accounting, which could help to lower gas fees when routing swaps by 90%
Singleton contracts, which could lower costs to create pools by 99%
MEV Profit Sharing with LPs
April 12: Uniswap Mobile Wallet is released on IOs
March 3: Uniswap Mobile Wallet early access.
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And, it’s completely open-sourced.
Thank you for the comprehensive overview. I never really paid attention to the BSL license factor before. Your article underscores the importance of differentiating between BSL projects and truly open-source projects from the public perception point of view, especially during Gitcoin grants contribution waves.