What can we expect from Uniswap V3? What unique skills do Uniswap’s competitors have?

On September 17, Uniswap issued UNI, which became the most sensational event in the circle. We also published an article the next day: "Uniswap sends out 10,000 yuan "red envelope": a major event to screen your current investment level."

I saw a reader's comment accusing you of hindsight after the price increase. Who wouldn't? In fact, if you have submitted articles or written articles, or operated public accounts, you will know that unless it is a sudden news information, an article of several thousand words needs to determine the topic and direction, and then write the article, calibrate, and typeset, all of which takes time. Therefore, all the content in it was actually written when the price was $3 on the first day, and there is no such thing as "hindsight".

This also shows from one side that there are actually very few people who truly understand how important it is for Uniswap to issue UNI. After all, there are only 250,000 addresses that receive airdrops. Putting aside multiple addresses for one person, there are only tens of thousands of foreign DeFi users and domestic users who can "feel" the importance of this matter. And to "deeply understand" the subversion of Uniswap for transactions, you must be a deep user of Uniswap. Just like Tesla, no matter how much the media praises it, you may have to test drive it yourself once to understand from the bottom of your heart why Tesla is a "paradigm shift" in the automotive industry - just like what Uniswap did for trading platforms.

However, this article is not about how Uniswap or the AMM automatic market maker system builds a "paradigm shift" in Swap. There are already enough articles on this topic, and if you are interested, you can find a lot of them by just searching. This article is about the next progress of Uniswap and what improvements its imitators are making to it.

Uniswap itself

Uniswap has been the undisputed leader in Dex in the past few months, leaving everyone behind by a large margin, making all imitators or competitors pale in comparison.

At the same time, Uniswap is still maintaining rapid iteration, and Uniswap V3 will be available in the near future. There are many speculations in the industry about V3. What is certain is that V3 will definitely introduce Layer 2. Uniswap officials have currently released a beta test platform called Unipig, which looks like this.

The features are just as described in the picture - instant exchange, no fees, high TPS of 200-2000, scalable, safe and reliable, using the Optimistic Rollup L2 architecture.

As to whether this will be the actual architecture of Uniswap V3, it is still unknown.

However, recently a small V on Twitter abroad released a series of content about Uniswap V3, claiming that these are all true, but because of the confidentiality agreement, he cannot reveal more content, which is very intriguing.

According to the content, Uniswap V3 will have the following features:

1. Limit order mode;

2. ZK-Rollup expansion plan;

3. Integrate ZK-SNARk and prevent front-running;

4. Fee distribution to UNI holders.

If this is true, other DEXs and even small CEXs will not have much advantage if nothing changes.

Especially combined with a tweet from the founder of Uniswap two months ago:

“Any fork of Uniswap V2 is meaningless and a waste of time, because we will soon have V3, which will solve ‘all problems’.”

We will mention these points again at the end of the article, but let’s keep it a secret here and introduce several Uniswap imitators.

It should be noted that the current Uniswap V2, before the issuance of UNI, left two problems aside from the performance or high Gas fees caused by ETH itself:

1. Lack of token incentives. Although there are fees for market making on Uniswap, without tokens, it always feels like something is missing, just like the most important ingredient of cooking is missing salt;

2. Slippage and impermanent loss - For users, when the depth is insufficient and the slippage is high, they will buy or sell tokens at a higher cost.

For market makers, there is impermanent loss, especially when prices soar or plummet. The large impermanent loss makes many market makers complain (if there are readers who don’t know about impermanent loss, you can first read "What is AMM Automated Market Maker" to learn about it.)

Almost all the Uniswap imitators on the market are aimed at improving these two problems. This article will introduce several relatively distinctive imitators one by one.

Sushiswap

Sushiswap is actually not the first imitator of Uniswap. The several others to be introduced later are much earlier than it.

However, other imitators basically improved on the second point. Sushiswap dealt a blow to Uniswap on the first point of "revolution" or "disruption". If you don't issue tokens, I will issue them. After you issue them, I will cut off the source of funds and move all your liquidity over!

Sushiswap has indeed been successful. In a short period of time, the amount of assets locked in Sushiswap has exceeded that of Uniswap. Uniswap’s “early issuance of tokens” is indeed directly related to the threat posed by Sushiswap.

However, as mentioned in the previous article, Uniswap is currently the absolute leader of Dex and the first choice for all new projects. This consensus is deeply rooted at present, so it is an impossible task to defeat Uni simply by Fork+issuing Tokens+moving liquidity. The price and asset lock-up volume of Sushi have also plummeted after the peak.

After all, Sushiswap has no improvement on the second point and is just a simple fork.

Recently, I saw a new proposal from the Sushiswap community, which wants to implement margin trading on the platform. To put it simply, it allows users to add leverage.

It is still unknown whether the proposal can be passed and whether it can be smoothly implemented if passed, but at least SushiSwap has finally started to work on the second point. After all, after the issuance of UNI, the first problem targeted by Sushiswap no longer exists. If it cannot form differentiated competition with Uniswap, what will follow will be a further decline in locked-up volume and price.

Balancer

Balancer can be said to be the most well-known Uniswap imitator, or competitor.

Balancer has made a lot of improvements on the second point:

1 Custom asset ratio: assets in the fund pool can add liquidity in any proportion, while Uniswap must add liquidity in a 1:1 ratio - many current liquidity mining methods have a ratio of 98:2 on Balancer, such as the previous YFI, YFII, etc.

2. Support up to 8 assets: Up to 8 assets can be added to a fund reserve pool, while each fund pool of Uniswap only contains 2 assets.

If you have used Balancer, you will feel that it is a more fully functional Uniswap, at least in theory.

However, for now, Balancer still cannot challenge Uniswap's position. It feels like, you may have made a communication app with more complete functions than WeChat, but WeChat's influence and network effect are so strong that you have to have a qualitative leap or a paradigm-level improvement to defeat it. There is no way to defeat WeChat with just a "functionally improved version" of WeChat.

Bancor V2 & Dodo

As the earliest proposer of AMM, Bancor did not pay enough attention to AMM. Instead, it was developed and dominated by Uniswap.

In order to regain its lost glory, Bancor launched version V2, trying to improve on the "second point" of Uniswap.

The specific improvement methods are as follows:

1. A new automated market maker (AMM) liquidity pool integrated with Chainlink price oracles, eliminating the risk of impermanent loss of stable and volatile tokens;

2. Provide 100% liquidity options for a single token;

3. A more efficient bonding curve with reduced slippage.

2 and 3 are not important. The biggest improvement is 1. The price is no longer determined by AMM formulas such as x * y = k, but is quoted to the exchanger based on the oracle's quotation. In other words, in theory, the price you buy with Bancor should be similar to that you get with the Big Three or Coinbase, and your slippage will not be too large due to depth issues.

DODO also has the same model, but adds a PMM active market maker algorithm based on Bancor. It claims to achieve higher capital efficiency by imitating the behavior of human market makers through unilateral coin rush and implementing active market making strategies on the chain.

However, the biggest problem with introducing oracles is giving up the pricing power of a coin. In other words, the price control is handed over to the three major CEXs or Uniswap with the best depth, and you are willing to be the "little brother". When users come to buy and sell things from me, the prices of other companies will be the basis.

You see, although there are improvements in slippage or uncompensated losses, the most important pricing power is also given up. For example, the first launch of a new project like Uniswap and then completing price discovery seems to be difficult to achieve by introducing oracles, and still has to rely on the simple and crude x * y = k.

Hakka Blackhole Swap

One of the biggest features of Black Hole Swap is its infinite depth.

You might ask, how is it possible to have infinite depth, especially on a DEX?

Of course, the infinity here does not mean true infinity, but rather a super depth that far exceeds what other DEXs can provide.

How is this achieved? —Metonymy.

The platform combines lending platforms such as Lend and Compound. When there is insufficient AToken in the AB pool, B Token is pledged to borrow A Token to supplement the liquidity of A Token. In theory, it can achieve extremely low slippage and almost unlimited liquidity.

As for the risks, they are naturally brought by DeFi Lego. Because there is another layer of borrowing on top of the exchange layer, there are relatively high requirements for the price changes of the collateral and the speed of liquidation. When encountering a black swan event like March 12, under the current weak performance of Ethereum, risks will be accumulated and superimposed.

SakeSwap

After Sushiswap became popular, a large number of Sushiswap imitators suddenly appeared on the market, and there are no less than ten known ones so far.

However, most of them just fork the Sushiswap token and change the UI, without any improvement at all, not even the slightest bit.

Sake has made a number of new improvements based on Sushiswap, including:

1. The token model emphasizes deflation in terms of incentives (Sushi is unlimited issuance), and there are three aspects of deflation. The first is the repurchase of 0.05% of the swap fee and then the destruction of 30%;

The second is to use UNI to buy back SAKE and destroy it from the UNI dual-mining fee. The third is to use 0.03% of the fee from the stablecoin exchange to buy back and destroy it.

2. Introduce slippage capture to improve the slippage distribution problem in AMM. To some extent, the slippage income is distributed from arbitrageurs to LPs (liquidity providers), but over time, arbitrageurs do not suffer any substantial losses;

3. Trading mining - Introducing S Token as a contribution equity certificate. Sakeswap believes that although everyone will think of the collapse of Fcoin when it comes to mining, it cannot erase the fact that trading mining provides incentives for traders to provide liquidity. Therefore, the mortgage of S token can also be used to mine SAKE, and SAKE itself will be repurchased and burned with 0.05% of the transaction fee contributed by the exchanger.

In addition to token deflation, Sake’s biggest selling point should be Swap mining. Fcoin and a group of imitators on CEX failed that year. Will Swap mining on DEX be successful this time?

LRC

LRC naturally cannot compare with Uniswap in terms of Swap volume and industry status in the DEX field, but LRC is the leader in the L2 order book model in DEX, and correspondingly, Uniswap is the leader in the L1 AMM model.

What’s very interesting is that Uniswap V3, which is about to be launched, will join L2, and LRC, which is about to undergo a major version upgrade to 3.6, will join AMM.

In the end, both of them end up with the same goal, which is L2+AMM.

Who will have the last laugh? Will Uniswap continue to expand its advantage by relying on L2, or will LRC catch up by relying on AMM?

postscript

However, combined with the rumors about Uniswap V3 just now, it is an unreliable inference here. It is completely conjecture and there is no evidence. So don’t take it too seriously. Just treat it as "entertainment gossip in the circle."

There are several starting points for speculation:

1. The aforementioned Twitter user Merkle_Tree tweeted that Uniswap V3 will have a ZK-Rollup expansion solution;

2. The only ZK-Rollup product that has been put into use and has scale and applications is LRC, which has been praised by Vitalik many times;

3. Coinbase recently listed LRC and UNI;

4. LRC founder Wang Dong said in the Telegram group that he is cooperating with a TOP exchange platform;

5. On the day UNI was issued, Wang Dong called for UNI online in his circle of friends;

6. Loopring has a relay system that is open as a service. Other platforms can use the relay system to build an exchange section on Loopring's ZK Rollup, and there are two modes.

First, the platform controls everything independently, and LRC is only responsible for providing an independent relay cluster, but the cost is higher. Second, after version 3.6, renting Loopring's relay system is equivalent to sharing a backend with LRC and sharing liquidity, but the front end can be different, which is much cheaper.

Therefore, it is speculated that if "Uniswap V3 will have a ZK-Rollup expansion solution" is true, then Uniswap is very likely to cooperate with LRC. Instead of fighting to the death in L2+AMM, it is better for everyone to join forces, one providing the largest traffic and consensus, and the other providing the industry's top L2 technology. This is a real win-win situation.

Of course, I emphasize again that the above inferences are completely personal and subjective, without any evidence, so please don't take them seriously...

However, I personally hope to see this kind of cooperation. Only in this way can our DEX experience be taken to a higher level, have a qualitative leap, and lay a solid foundation for the next stage of Defi...