20/05/2021 Uniswap V3: An Early But Resounding Success | Messari

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Uniswap V3: An Early But Resounding Success

By Ryan Watkins
20 hours ago ⋅ Pro Research

In late March Uniswap Labs unveiled its highly anticipated Uniswap V3

protocol. At the center of it was the concept of concentrated liquidity - the
ability for liquidity providers (LPs) to make markets within customized price
ranges, creating individual price curves in the process. The design promised
to increase capital efficiency for LPs by as much as 4,000x by enabling LPs to
provide the same liquidity depth as V2 within specified price ranges while
leaving far less capital sitting idly.

Source: Uniswap Blog

Two months later, on May 5, Uniswap V3 finally launched and within its first
two weeks it's already become a resounding success. It took only three days
for Uniswap V3 to become the top decentralized exchange (DEX) on
Ethereum behind Uniswap V2, and in the past seven days it facilitated more
than $6.5 billion in volume.

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In fact, Uniswap V3 has been so successful it is quickly approaching volume

parity with Uniswap V2. At its current pace of growth it will likely surpass V2
by the end of May.

Perhaps most notable about Uniswap V3’s stellar volume growth is its
efficiency in achieving it. Uniswap V3 is facilitating nearly as much volume as
Uniswap V2 with less than 15% of the total value locked in Uniswap V2. It is
the only AMM that turns over its total value locked more than 100% on a
daily basis - more than 5x Uniswap V2 which currently sits at number two.

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The most popular pairs on Uniswap V3 tell a similar story of efficiency. Its
stablecoin pairs in particular are facilitating a similar amount of volume to
Curve’s 3Pool with just a fraction of the TVL. Curve’s 3Pool has $1.65 billion
while Uniswap’s USDC/USDT and DAI/USDC have $125 million in aggregated
total value locked (TVL). At time of writing, 24 hour volume for Curve’s 3Pool
reached $265 million while Uniswap’s USDC/USDT and DAI/USDC pools
reached $198 million. For these trading pairs, the ratio of 24H volume to TVL
for Curve is 16% while that of Uniswap V3 is 158%.

Source: Uniswap Analytics

Source: Curve.fi

Uniswap’s Growing Dominance

Already, the success of Uniswap V3 plus the continued dominance of
Uniswap V2 has led to Uniswap increasing its market share to a new 2021
high of 61%. Uniswap has consistently gained market share throughout
2021.

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The growth comes at a time when DEX volumes are once again surging. In
the first 16 days of May, DEX volumes on Ethereum have just about reached
their previous all-time high monthly volume record set last month. They’re
on pace to facilitate more than $123 billion in volume this quarter - almost
double what they did in April.

The growth also comes at a time when a handful of competitors are

releasing new protocol upgrades of their own. The theme across each
protocol is capital efficiency, with each team approaching the problem
through a variety of different approaches. SushiSwap's upcoming upgrade,
dubbed Deriswap, will introduce a new AMM that combines trading, lending,
futures, and options into a single protocol. Balancer’s upcoming upgrade will
introduce a single vault that holds all assets deposited into the various pools,
which not only reduces gas costs for trades that span multiple pools (a pain
point for Balancer V1), but also allows Balancer to increase capital efficiency
through “Asset Managers'' which allocate idle assets in Balancer’s pools to
other protocols (like Aave) to earn yield.

Whether these alternative approaches to capital efficiency resonate more

with the market will be determined in the coming months. In any case
Uniswap V3 is just getting started and will also continue to improve during
this time. Projects have not yet started to provide incentives for LPs on V3,
users are just getting newly acquainted with V3’s parameters, and protocols
f i i LP i h l h N i
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for managing passive LP strategies have yet to launch. Not to mention,
Uniswap V3’s upcoming deployment to Optimism could push volumes
further.

One thing is clear for now though: Uniswap V3 is a resounding success.

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