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- TIMESTAMPS -
2:09 Uniswap Recap & AMM Explanation
4:50 Liquidity & Impermanent Loss
6:30 LP Tokens & DeFi Composability
8:24 Uniswap V3 Explained
10:09 Concentrated Liquidity
12:38 Capital Efficiency
14:34 LP Risks & Features
17:41 Uniswap License
19:25 UNI Token Analysis
21:40 Final Thoughts
️ Useful Links ️
► AMM Concept by Vitalik Buterin: https://vitalik.ca/general/2017/06/22/marketmakers.html
► Uniswap LP Tokens On Aave: https://medium.com/aave/aave-amm-market-released-73ae76a7cbc0
► Ethereum Optimism Delay Explanation: https://optimismpbc.medium.com/optimistically-cautious-767a898f90c8
► Curve Finance Explained: https://www.coinbureau.com/review/curve-finance-crv/
► Uniswap Blog Post About V3: https://uniswap.org/blog/uniswap-v3/
► Uniswap V3 Whitepaper: https://uniswap.org/whitepaper-v3.pdf
Uniswap Recap & AMM Explanation
Uniswap was founded in the fall of 2017 by mechanical engineer Hayden Adams. Uniswap is a proof of concept for an on chain automated market maker protocol detailed by Vitalik Buterin.
In contrast to the order books you see on centralized exchanges, automated market makers or AMMs determine the price of a cryptocurrency based on the ratio of two cryptocurrencies within a pool.
Liquidity & Impermanent Loss
If you’re wondering where all the crypto in these AMM pools comes from, the answer is liquidity providers AKA LPs.
LPs provide the appropriate ratio of both assets to an AMM pool to receive a cut of the trading fees taking place in that pool as a reward for doing so.
The difference in profits between providing liquidity and simplifying holding the cryptocurrency involved is called “impermanent loss”. This loss becomes permanent if funds are withdrawn.
LP Tokens & DeFi Composability
Whenever an LP provides two cryptocurrencies as liquidity to an AMM pool, they are given a corresponding amount of ERC-20 LP tokens which can be used to redeem the liquidity.
These LP tokens are one of the backbones of DeFi as they can be used in other protocols and dApps to lend, borrow, and earn rewards.
Uniswap V3 Explained
Uniswap V3 has been in the works since last spring, and The details for Uniswap V3 were officially revealed on March 23rd.
The reception was mixed given it does not do much to address Ethereum’s high gas fees. It will be launching on Ethereum on May 5th and on the Optimism scaling solution in the summer.
Concentrated liquidity completely redesigns the way LPs can provide liquidity for AMM pools on Uniswap by letting them choose which price range they want to provide liquidity for.
As a consequence of concentrated liquidity, liquidity providers can earn up to 4000x more in trading fees for providing liquidity.
LP Risks & Features
Another byproduct of being able to provide concentrated liquidity in V3 is an increase in impermanent loss, and the risk that your liquidity will be made inactive.
Also, since it won’t be possible for a single ERC-20 LP token to represent all these different concentrated liquidity positions, LPs on Uniswap V3 will receive NFT tokens that represent that liquidity.
Uniswap V3’s code will require a license to use for the first two years after it launches. This is to prevent the project from being forked by other developers in the space, which has happened many times.
UNI Token Analysis
At first glance the UNI token seems overvalued relative to the total value locked in Uniswap. However, UNI tokens are able to vote to claim a portion of all trading fees on the DEX, which could provide them with lucrative passive income. This seems to have been priced in.
The information contained herein is for informational purposes only. Nothing herein shall be construed to be financial legal or tax advice. The content of this video is solely the opinions of the speaker who is not a licensed financial advisor or registered investment advisor. Trading cryptocurrencies poses considerable risk of loss. The speaker does not guarantee any particular outcome.
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