Uniswap V3 Goes Live – What’s the Larger Impact on DeFi?
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Uniswap V3 Goes Live – What’s the Larger Impact on DeFi?

Uniswap V3 introduces more flexibility for liquidity providers, but could this cause problems for other AMMs?
Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.

Uniswap, leading in the decentralized exchange market, has officially launched the third version of its platform. This is big news for DeFi as Uniswap is currently valued as the largest DEX in the industry, holding $7.15 billion in locked USD. For this reason, investors, developers, and enthusiasts are eagerly watching to see how this major update affects the market. 

Uniswap gained notoriety early on within the industry as it was one of the first DEXs to use automated market makers (AMMs). AMMs are tools that help users trade with speed and efficiency without having to use an order book (like with traditional exchanges). Since then, many other AMM DEXs have followed in Uniswap’s footsteps, such as PancakeSwap and Linkswap. 

Uniswap V3 Brings More Control to Liquidity Providers

This major update brings two sought-after features.

One of which is the introduction of concentrated liquidity, meaning that liquidity providers (referred to as LPs on Uniswap’s site) will have more control over what price ranges they want to work within. Liquidity providers are people who add liquidity (or cryptocurrency) to the Uniswap pools; they are the lifeblood of any AMM. Without them, there would be no money for users to trade with on the exchange. Concentrated liquidity allows LPs to add liquidity to the pool, which others can trade against, while reducing the risk of volatility which can harm users’ funds.

The second feature is that there will now be multiple fee tiers, allowing LPs to tailor their margins in accordance to their concerns of volatility. There are now three tiers: 0.05%, 0.30%, and 1.00%. 

Clearly these are very technical benefits to Uniswap, focused specifically on liquidity providers. While they might not sound particularly exciting or revolutionary, they may still have a significant impact on DeFi as a whole.

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Uniswap V3 Might Shake Up the DeFi Space

The launch of Uniswap V3 could very likely alter the DeFi industry, which is currently estimated to have over 2 million users. Uniswap has tactfully decided to focus on LPs, as they understand how paramount LPs are to keeping the exchange afloat. By giving them more refined controls, they are encouraging more people to provide liquidity on Uniswap, rather than on other decentralized alternatives such as PancakeSwap, BurgerSwap, or Curve.

If users find V3 appealing enough, it could cause other DEXs to lose liquidity as individuals may choose to work with Uniswap instead. This could even impact other DeFi projects that also use these pools, such as Venus and AAVE, two leaders in the crypto lending space

Keep an eye out for Uniswap’s token, UNI. In the coming days, it is very likely to be moving upwards as more people flock to provide liquidity to it. It is currently resting at around $41.57, and while it has not seen much meaningful movement yet, it is still early days for V3. It may take some time for the markets to reflect the exchange’s improvements. 

A Sign That DeFi is Maturing

Uniswap was one of the first DeFi projects to gain notoriety, and for this reason it brought DeFi into the spotlight, demonstrating the true potential of decentralized smart contracts applied to finance. The fact that Uniswap V3 has been released is a sign that alternatives to traditional finance are maturing.

Many people are weary of entering the DeFi space because of its youth, and reputation of lacking security. Yet the fact that one of the catalysts for our ongoing DeFi bull run has just released a major update could convince some skeptics that the industry is beginning to refine itself.

What sort of impact do you think Uniswap V3 will have on DeFi? Let us know in the comments below.

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