Uniswap unveils Version 3

Uniswap has revealed its third iteration touting it to be the “most flexible and efficient automated market maker ever designed.”

The leading decentralized exchange on Ethereum on a blog post described the aims of the iteration and about the new competition in AMMs like SushiSwap and 1inch that have been making managing ETH-based assets easy for users.

The third iteration is expected to launch on May 5 as per the firm’s announcement. The firm claims the new version to be up to 4,000 times more capital efficient compared to v2. The key change mentioned in the new white paper is what Uniswap calling “concentrated liquidity”.

“In this paper, we present Uniswap v3, a novel AMM that gives liquidity providers more control over the price ranges in which their capital is used, with limited effect on liquidity fragmentation and gas inefficiency.”

Concentrated liquidity allows liquidity providers (LP) to control their minimum and maximum prices on their portion of any given pool.

The new version has another feature in its arsenal: different pools can be created with different fees. Currently, all trades in Uniswap pools have a 0.003% fee for trading. Now more than one pool can be created with different fees.

Finally, Uniswap has removed native ERC-20 tokens for representing LP positions. Also, additional reporting will be necessary for determining implications for tracking LP position. The blog post states that this will increase flexibility for users:

“Over time we expect increasingly sophisticated strategies to be tokenized, making it possible for LPs to participate while maintaining a passive user experience. This could include multi-positions, auto-rebalancing to concentrate around the market price, fee reinvestment, lending, and more.”

As of writing, Uniswap is the sixth-largest protocol on DeFi pulse with a valuation of $4.04 billion trailing behind SushiSwap and Curve Finance.