Get to know the next generation DEX liquidity aggregator — UniswapX

Preface: On July 17, Uniswap founder Hayden Adams announced the launch of a new open source protocol called UniswapX, which will aggregate the liquidity of decentralized trading pools.

Since the launch of the first version of the Uniswap protocol in 2018, on-chain transactions have exploded, supporting millions of users, hundreds of use cases, and $1.5 trillion in trading volume on Uniswap alone.

To grow on-chain trading and improve self-custodial swaps, we are excited to announce the launch of a new permissionless, open source (GPL), Dutch auction-based protocol “UniswapX” for trading across AMMs and other liquidity sources.

Today, the team launched an opt-in beta of the protocol on the Uniswap Labs interface, available for Ethereum mainnet, with expansion to other chains and Uniswap wallets in the future.

Code link: https://github.com/Uniswap/UniswapX

White paper link: http://chrome-extension://oemmndcbldboiebfnladdacbdfmadadm/https://uniswap.org/whitepaper-uniswapx.pdf

Over time, UniswapX will improve the token swap experience in a number of ways:

• Get better prices by aggregating liquidity sources

• Gas-free exchange

• Preventing MEV (Maximum Extractable Value)

• No fees for failed transactions

• In the coming months, UniswapX will expand to gas-free cross-chain swaps.

Next level aggregation

On-chain routing is an increasingly important and complex problem. Innovations in on-chain trading have led to an explosion in liquidity pools. New fee tiers, new L2s, and more on-chain protocols will fragment liquidity, and users are expected to build thousands of custom pool designs on Uniswap v4, making routing more challenging. But as liquidity sources grow, continuing to provide competitive prices requires manual integration and a lot of ongoing maintenance and work.

UniswapX aims to solve this problem by outsourcing routing complexity to an open network of third-party providers (fillers), who then compete to complete swaps using on-chain liquidity such as AMM pools or their own private inventories.

With UniswapX, swappers will be able to use the Uniswap interface without having to worry about whether they are getting the best price, and trades will always be transparently recorded and settled on-chain. All orders are supported by the Uniswap smart order router, which will incentivize fillers to compete with Uniswap v1, v2, v3, and v4 after launch.

Gas-free swaps — no fees to pay if swaps fail

With UniswapX, swappers sign a unique off-chain order, which is then submitted on-chain by fillers who pay Gas on behalf of the swapper. Because swappers do not need to pay Gas, they do not need the chain's native network token (e.g. ETH, MATIC) to make trades or pay any fees for failed trades. Fillers factor gas fees into the swap price, but can reduce transaction costs by batching multiple orders to compete for the best price.

Note: Users still need to pay gas in certain cases, such as initial token approval for Permit2. In addition, native network tokens still need to be wrapped when they are sold, which consumes gas fees.

MEV protection

MEV is one of the biggest problems facing on-chain exchanges today, resulting in worse prices for exchangers.

With UniswapX, MEV that would otherwise be captured through arbitrage trading is returned to exchangers through price increases. UniswapX also helps users avoid more explicit forms of MEV extraction: orders executed using fillers’ inventory cannot cause sandwich attacks, and fillers are incentivized to use private transactions when routing orders to on-chain liquidity venues.

Next article: UniswapX moves towards X-chain

A cross-chain version of UniswapX will be launched later this year, combining swaps and bridges into one seamless operation. With cross-chain UniswapX, swappers will be able to swap between chains in seconds. Swappers can also choose which assets to receive on the target chain, rather than bridge-specific tokens.

Launch UniswapX on the Uniswap Labs interface

UniswapX brings the ideas and models of DeFi and digital marketplaces to a new system built with the same principles of security, self-custody, and community that have made Uniswap the most trusted name in DeFi.

UniswapX is an immutable smart contract that is completely permissionless. No one, including Uniswap Labs, can modify or suspend the contract. The earliest fillers can be triggered at any time to ensure appropriate auction starting prices and fast order execution, and we expect the filler network to expand rapidly with user adoption.

In line with our commitment to security, ABDK conducts extensive testing and auditing of the code, and we also offer a bug bounty, Exchangers always maintain self-custody of their funds, and assets are only transferred out of their accounts after the order is executed and they receive the proceeds of the trade.

Just like the Uniswap protocol, UniswapX includes a protocol fee switch that can only be activated by Uniswap governance (Uniswap Labs has no involvement in that process).