06 May 2021
It’s arguably the most anticipated, long-awaited iteration for Uniswap, Ethereum’s leading automated market maker (AMM), ever. And anyone that has been involved in Ethereum in general, and the wider decentralised finance (DeFi) space will certainly agree!
Uniswap v3 is now live!
Uniswap launched on Ethereum back in November 2018, with the second version, Uniswap v2, launching in May last year. The AMM is currently the fourth-largest DeFi application on the network and possesses a whopping $7 billion in total assets staked, as per DeFi Pulse. In April alone, Uniswap recorded approximately $51 billion in volume, demonstrating why it’s a front-runner on the second-largest decentralised network after Bitcoin.
Insanely high fees attached to exchanging tokens on the network are a bug-bear for many users, though, and have almost become synonymous with, and undeniably detrimental to the Ethereum network.
Now, the release of Uniswap v3 yesterday promises to offer a far more rewarding experience for seasoned crypto traders, whilst attracting prospective investors keen to enter the space. Going further, version 3 aims to give end users greater control over the liquidity they provide, and more importantly, bring more benefits for those that carry out riskier trades.
How will they do this? Well, the answer is with “concentrated liquidity”.
Firstly, focusing on the basic functionality of an AMM, they allow traders to deposit any two given tokens into liquidity pools; each pool effectively offers a price for both tokens, which of course, are determined by the ratio of the given tokens.
“Concentrated liquidity” essentially makes the basic functionality of an AMM more efficient for users by allowing liquidity providers (LPs) to specify the price range they want their liquidity to be used for.
So, Uniswap adding more fee tiers will essentially enable traders to determine their risk level when trading highly volatile tokens. And those that have used Uniswap will know that assets can be highly susceptible to price swings when trades are carried out.
According to Uniswap’s developmental roadmap, the team have outlined that a further update scheduled for July on Optimistic Rollup, a layer-two protocol that will greatly reduce the costs of transactions.
The first rollout of Uniswap v3, according to the team at Uniswap, will bring greater returns for experienced DeFi traders, particularly as the introduction of cheaper oracles ensures that data is kept up to date.
With the integration of Binance Smart Chain (BSC) to support DeFi applications last year, many have migrated from Ethereum, instead using BSC DEXs like PancakeSwap, which has reduced Uniswap’s total market share. However, this third iteration of Uniswap will definitely attract even more liquidity and encourage those that had left the network due to high costs to return to Ethereum.
4/— Uniswap Labs 🦄 (@Uniswap) May 5, 2021
🖼️ LP positions are now NFTs!
🎨 NFTs will appear as unique on-chain generated art based on the properties of your position
✨ Look out for rare sparkles! pic.twitter.com/fC2e5Wzc3l
Not only this, but v3 also welcomes with it the ability for LPs to make positions in NFTs (non-fungible tokens), which as many of you will know, have gained mainstream recognition in recent months. The next couple of months will be huge for DeFi as awareness of cryptocurrency increases!
We allocated a total of 1,000,000,000 IGG this year to go towards LP rewards as LP providers play a fundamental role in the decentralised future and are a key part of IGG’s growth.
As well as receiving fees from these decentralised exchange protocols, we also want to provide our community with additional value; that’s where our bonus LP rewards come in!
We have provided great incentives to our liquidity pools so far offering over $650,000 in rewards to date across Uniswap, DFyn and QuickSwap, as well as Router Protocol’s Galaxy Farm 2!
Here’s a break down:
The liquidity rewards for the IGG/ETH pairing on Uniswap will remain at 4,000,000 IGG each month in anticipation for upcoming exchange listings and further LP incentives.
Router Protocol Galaxy Farm 2
More details relating to liquidity rewards for QuickSwap will be revealed when necessary.
Prices of IGG taken from CoinGecko as of 06/05/2021.
1. Select IGG/ETH pair
2. Select “Fee Tier” As mentioned above, Uniswap v3 introduces multiple fee tiers per pool.
The 0.30% fee tier is best suited for pairs that are subject to significant price movements. This higher fee is more likely to compensate LPs for the greater price risk that they take on providing liquidity.
The 1.00% fee tier is designed for highly volatile assets, where greater risks are taken; these price fluctuations are highly volatile, so take time to consider whether this is best for you.
3**. Set your starting price** The 'select starting price' parameter appears for pools that have not yet been created. The first LP must specify the current market price of the two assets: the toggle on the top right allows users to convert to their preferred denominator.
If you select a starting price that differs significantly from the market price will expose a LP to an immediate arbitrage opportunity. Please check the starting price is correct.
“Step 3” is not required for the IGG/ETH pool as the pairing has already been created.
4. Set price range Select a price range in which to provide liquidity.
Depending on the fee tier selected, the interface will offer the ability to adjust prices in 0.10%, 0.60%, or 2.00% increments.
Please note, all prices that are entered manually will adjust to the closest price tick.
In the event that the price moves outside of your specified range, your position will be concentrated in one of the two assets and, so, you will not earn trading fees until the price returns to the range you have set.
If the specified price range is above the current market price, you’ll be essentially placing 'Range Orders' where you’ll only start earning trading fees once the price moves into your specified range.
When making a price range decision, you should carefully consider the extent to which you think the price will move.
A narrower price range has the advantage of being more capital efficient.
However, a narrower price range requires you to regularly monitor liquidity as the market price may move outside your specified price range.
5. Deposit the IGG and ETH amounts Once you’ve specified your position parameters, decide how much capital you wish to contribute.
Entering a value in one of the 'Select Deposit Amounts' modules will automatically fill the remaining module on a 50/50 split basis. So, if you contribute 1,000,000 IGG then the equivalent amount in ETH at the current price on the pair, or at the specified rate if you’re creating a new pair will need to be added.
You can, however, deviate from a 50/50 portfolio balance. Simply “Select Price Range”, on the previous step, and modify to an upper or lower bound. The deposit amount module that a value is manually entered in will remain fixed, while the second asset's associated value will fluctuate according to adjustments to the price range.
6. “Approve” and “Add” The final step in the liquidity provision process requires you to approve the Uniswap v3 router contract to spend tokens on their behalf.
Once the “Approve” transaction has been confirmed, you can add your liquidity. You will be presented with a confirmation pop up that shows an overview of your specified parameters.
After the “Add” transaction has been confirmed, you can manage any new positions on the 'Pool' page.