The developers of the decentralized exchange Uniswap unveiled a new version of the Uniswap v3 protocol, which will be launched May 5 on Etherium and then integrated with the second-tier Optimism solution. According to a blog post by the developers, the goal of the new version of the protocol is to make the application "the most flexible and efficient automated market maker ever created." The developers plan to launch Uniswap v3 on the core Etherium network on May 5, and are also considering integrating it with Optimism's Layer 2 solution, which aims to increase network bandwidth. The developers claim that the new version of the protocol will improve capital efficiency by up to 4,000 times over the current version of the application. A key change outlined in the project's white paper is "concentrated liquidity," which allows liquidity providers to set minimum and maximum prices for their stake in any given pool. "We are introducing Uniswap v3, a new automated market maker that gives liquidity providers more control over the price ranges in which their capital is used, with limited impact on liquidity fragmentation and gas inefficiencies," the developers state. The new version of the protocol will also allow for different pools with different commissions. So far, transactions in all Uniswap pools have had a commission of 0.03%. The project white paper states, "While historically this commission has worked reasonably well for many tokens, it is probably too high for some pools (e.g., pools between two Stablecoins) and probably too low for others (e.g., pools that include highly volatile or rarely traded tokens)." A key change for Uniswap's compability could be the elimination of its own ERC-20 tokens representing liquidity provider positions. "Changes to Uniswap v3 cause this problem by making interchangeable liquidity tokens impossible to work with," the white paper states. Additional reporting will be needed to determine the impact of the changes when tracking liquidity provider positions. Developers believe that this will ultimately make the protocol more flexible for users: "We expect tokenization of more and more elaborate strategies over time. This will allow liquidity providers to participate in the protocol while maintaining passive interaction with the user, such as automatic rebalancing to focus on market price, reinvestment of commissions, crediting, and more." Finally, the developers describe a major change in licensing for the new version of Uniswap: "Uniswap v3 Core will run under the Business Source License 1.1. The license restricts the use of Uniswap v3 source code for commercial or production purposes for two years, after which the protocol will be distributed under the perpetual GPL license. We strongly believe that decentralized financial infrastructure should ultimately be free and open source software. At the same time, we believe the Uniswap community should be the first to create an ecosystem around the Uniswap v3 Core code base." With the new license, the developers want to prevent other DeFi projects from completely copying the protocol code to create their own applications. Recall that last fall a fork of Uniswap called SushiSwap took liquidity from the "parent" platform to its own. As a result, the volume of blocked assets on Uniswap dropped by 75%. Uniswap is DeFi's sixth-largest protocol, with more than $4 billion in blocked crypto assets. Last month, the Uniswap exchange was the first in the DeFi industry to reach a total trading volume of more than $100 billion.
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