Whales Tend to Stay in Uniswap V3 than V2? How’s Its Performance Compared to V2?

2021-05-10 09:08:33 · 3192 views · 5 min read

 

In 2020, Uniswap V2 introduced new features and optimizations, setting the stage for exponential growth in AMM adoption. V2 has soon become the leader in the DEX space. 

 

 

On 5th May 2021, Uniswap V3 was officially launched. What new features does V3 introduce to the DEX sector? Have you tried it yet? Let’s take a closer look at Uniswap V3 together.


 

 

What’s New in Uniswap V3?

 

According to Uniswap official blog, V3 aims to become “the most flexible and efficient AMM ever designed”:

 

 

Concentrated Liquidity

- Giving individual LPs granular control over what price ranges their capital is allocated to. Individual positions are aggregated together into a single pool, forming one combined curve for users to trade against.

 

 

How to understand the “Concentrated liquidity”? 

In Uniswap v2, liquidity is distributed evenly along an x*y=k price curve, with assets reserved for all prices between 0 and infinity. For most pools, a majority of this liquidity is never put to use. As an example, the v2 DAI/USDC pair reserves just ~0.50% of capital for trading between $0.99 and $1.01, the price range in which LPs would expect to see the most volume and consequently earn the most fees. V2 LPs only earn fees on a small portion of their capital, which can fail to appropriately compensate for the price risk (”impermanent loss”) they take by holding large inventories in both tokens.

 

 

In Uniswap V3, LP’s can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices. In doing so, LPs construct individualized price curves that reflect their own preferences.

(Source: Uniswap Blog)

 

 

As a byproduct of per-LP custom price curves, liquidity positions are no longer fungible and are not represented as ERC20 tokens in the core protocol.

 

 

Instead, LP positions will be represented by non-fungible tokens (NFTs). However, commonly shared positions can be made fungible(ERC20) via peripheral contracts or through other partner protocols. Additionally, trading fees are no longer automatically reinvested back into the pool on LPs’ behalf.


 

Multiple Fee Tiers

- Allowing LPs to be appropriately compensated for taking on varying degrees of risk.

Uniswap v3 offers LPs three separate fee tiers per pair — 0.05%, 0.30%, and 1.00%. This array of options ensures that LPs tailor their margins according to expected pair volatility: LPs take on more risk in non-correlated pairs like ETH/DAI and, conversely, take on minimal risk in correlated pairs like USDC/DAI.


 

So the advantages for LPs to migrate to Uniswap V3 is concluded as below:

  • LPs can provide liquidity with up to 4000x capital efficiency relative to Uniswap v2, earning higher returns on their capital;

  • Capital efficiency paves the way for low-slippage trade execution that can surpass both centralized exchanges and stablecoin-focused AMMs;

  • LPs can significantly increase their exposure to preferred assets and reduce their downside risk;

  • LPs can sell one asset for another by adding liquidity to a price range entirely above or below the market price, approximating a fee-earning limit order that executes along a smooth curve.


 

 

Then how’s the real performance of Uniswap V3?

 

Are traders and LPs really buying the new features? Is the growth trend positive or negative?

 

 

Based on the data on Uniswap V3 and Uniswap V2, we can compare and draw the conclusions below.

  • Uniswap V3’s volume, traders and trade counts first increased dramatically 11007109.9%, 103445.45% and 96614.28% to ATH from 4th to 8th May, then started to drop.

  • At the beginning of V3 launch, volume is moving from V2 to V3. 

  • After the “newly launched effect” of V3, more mass traders are choosing back to use V2. While whales tend to stay in V3.

 

Let’s compare Uniswap V3 and V2 dashboards to explain how we get the conclusions.

 

 

Unique Trader Amount

Uniswap V3’s on-chain data can be tracked since 4th May. Since launch day to 8th May, the Unique Trader Amount first increased from 11 to ATH 26.83K on 8th May. It then decreased 19.5% to 11.39k on 9th May. While for V2, traders amount stays quite stable since V3 launched at the beginning but when the V3 trader amount began to drop on 8th, the V2 trader amount, in turn, went up. It increased 47.52% from 4th to 9th May.

 

 

Dex Trading Volume

The V3’s Dex Trading Volume first grew 11007109.9% to ATH $629.02M on 8th May, then dropped 32% to $243.14M in 1 day. The total Dex Trading Volume of Uniswap V2 from 4th May to 8th May moves oppositely, it dropped 5.52%. So at the beginning of the V3 launch, volume is moving from V2 to V3

 

 

After the dramatic growth ended on 8th May, V3’s trader amount and volume both drop (users -19.5%, volume -32%). For V2, users increased 39% while volume drops 43%. It indicates that after the “newly launched effect” of V3, more mass traders are choosing back to use V2. While whales who contributed a bigger amount of volume tended to stay in V3




What other findings can you get from the data? Feel free to write down your insights!


 

 

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