Details about Uniswap’s latest version 3 upgrade have been revealed by the company, with the focus on making the decentralized exchange as capital efficient as possible.
According to the release, published today, the platform upgrade is expected to go live on Ethereum on May 5th, and on Optimism soon after.
One of the main features of the upgrade is to give the ability for Liquidity Providers (LP’s) to make markets within custom price ranges. This novel approach, dubbed Concentrated Liquidity, means LP’s are responsible for placing their assets into liquidity pools, against which Uniswap’s users can trade. This is markedly different from the traditional market makers, who generally provide the liquidity and help traders move in and out of positions. Previously, Liquidity Providers were required to have capital on stand-by for all prices, including those which were highly unlikely (for example, for ETH trading over 500,000 USD). This meant that a huge amount of liquidity would be ‘idle’, rather than being available for use at more current price ranges.
In Uniswap version 3, these LP’s will be able to set the ranges for liquidity, creating more individualised price curves according to records given to The Block ahead of the publication.
“You can put up the same amount of capital to earn more fees or use marginal capital saved to invest in any other strategy of choice. This change is meant to decrease slippage on Uniswap, which would improve the overall trading experience. From a strategic standpoint, this focus on capital efficiency will perhaps further cement Uniswap’s dominant position in the market.Teo Leibowitz – UniSwap strategy Lead