Hayden Adams, Founder of Uniswap, presents “Automated Liquidity” at Fluidity 2019. Fluidity
Uniswap recently published a blog post, announcing the launch of the second iteration of its Ethereum decentralized exchange. Version 2 of the protocol has been deployed on the Ethereum mainnet and comes with great new features and improvements.
Uniswap is a fully decentralized system for automated liquidity provision on Ethereum. It allows users to trade any ERC-20 tokens using ETH as the means of trade. With $43 million of liquidity and $13 million in activity on the platform per 24 hours, the exchange is considered to be one of the “financial primitives” that power DeFi.
Probably the biggest usability improvement is that, in version 2, direct ERC-20-to-ERC20 token swaps are now possible. This will be a huge advantage when it comes to stablecoin-to-stablecoin trades e.g. USDC – DAI. The initial instance allowed liquidity pools only between an ERC20 token and ETH, so this is a huge step up in user experience. Direct pairs should reduce costs, as no routing to ETH, which generates more fees, will be necessary.
Hayden Adams, Uniswap’s founder, commented on the headlining new feature:
“Having stablecoin pairs on Uniswap is a pretty huge improvement. It’s probably the most requested thing since Uniswap launched.”
Another anticipated new functionality is the Price Oracle, which will enable decentralized and manipulation-free on-chain price feeds. To accomplish this, Uniswap will gather historical data by measuring prices in moments when they are expensive to manipulate. That way, smart contracts will constitute price averages in-between any moment in time.
With the new version, Uniswap is also introducing Flash Swaps, which resemble dYdX’s flash loans and allow lending a limitless amount of assets from a liquidity pool. The condition is the assets are returned within the same block, otherwise the transaction will be interpreted as invalid. These types of services are used for doing price arbitrage across various DeFi platforms. Uniswap V2 also updated its analytics info site.
Uniswap V1 will still continue to work and users will be able to choose which version they want to use. In addition, they can migrate liquidity to version 2 using a migration portal. The updated interface will let clients know which version provides better liquidity and price.
Adams shared his opinion on version 1:
“Version 1 was almost this like proof-of-concept. It was the first implementation of this protocol. It got a lot of things very right. And that’s proved by usage and traction.”
The new features are superb, but still, Uniswap might get very expensive, as currently the fee is around 0.6% meaning that if you trade 1 ETH for 211 DAI you will have to pay $1.27.
We should mention that the exchange experiences massive bid/ask spread. For example, to buy ETH one needs 213.3 DAI, while selling ETH costs only 211 DAI, which is a bigger loss than a trading fee. For larger trades, this price slip can become even bigger. These types of issues are typically a result of low liquidity at launch