π₯ I don't think the insane efficiency of @Uniswap v3 has sunk in yet. Just how efficient is it?
The equation for calculating the efficiency of a concentrated v3 position relative to providing to the entire v2 curve:
1/(1 - (a/b)^(1/4))
where a and b are your price bounds
2/
Over the past 3 months (Jan8-present) the price of ETH/BTC has ranged from 0.0295 to 0.0454
Plugging into the formula, we find it is 9.8x more efficient than v2
So what does this actually mean?
3/
Today, the Uniswap v2 WBTC/ETH pair has $318m in it.
If WBTC/ETH LPs instead provided to the range of 0.0295 and 0.0454 on v3 they could create the same amount of liquidity, and take on the same amount of impermanent loss with just
318/9.8 = $32m
4/
π€― The pools would have behaved identically, except that v3 LPs would be taking on 10% of the inventory risk and required only 10% of the upfront capital
You can create identical liquidity with far less capital. You can also create more with the same amount of capital.
5/
If the $318m of v2 liquidity was deposited to a v3 position between 0.0295 and 0.0454 it would create the equivalent of:
318*9.8=$3.1b
in Uniswap v2 liquidity, with the same amount of upfront capital / inventory risk and 9.8 increased impermanent loss
6/
Efficiency is just a means to an end - the result of concentrated liquidity is offering far better execution rates and giving LPs more desirable positions
How much better will they be once v3 is live? These things can be hard to predict.
π But i have a good feeling
β’ β’ β’
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Uniswap v3 provides the only possible "solution" to impermanent loss and price impact
It also lets you reduce total price risk while increasing your impermanent loss (relative to v2) with concentrated liquidity
This might need a blogpost but I'll try a long thread first
2/
"Impermanent loss" (IL) refers to the fact that if you sell a token before it rises in value it would have been better to hold it and sell more at the higher price
Similarly, if you buy a token and it drops in value it would also have been better to hold
3/
The "impermanent" part refers to the fact that if you sell a token and it rises in value you, but buy it back as it falls in value you are back to where you started
IL is only "impermanent" if prices eventually revert to where they started. Then all fees are pure profit
Result 1:
"If the volatility of an asset is high enough relative to its average rate of return, LPs on Uniswap will do better than HODLers over time, even when the only incoming trades are arbs."
TLDR: LPing can be good without "retail" volume and arb is not bad for LPs
3/
Result 2:
In a zero latency, zero network fee, arbitrage-only (no "retail") world, the profit-optimizing LP fee approaches (but never touches) 0.
This was one of the more shocking results
TLDR: Lower fees = more profitable arb trades = more total fee revenue
Second, you canβt directly compare manipulation resistance of entirely on-chain oracles that pulls from dex with something like chainlink that reports off-chain data
The attack surfaces and trust assumptions are very different
3/
Uniswap TWAPs report 100% accurate average of Uniswap price (at start of block) across arbitrary time periods with perfect reliability and accuracy.
The cost of manipulating is whatever is lost to arbitrage by moving the average market price across this period
Can't tell who is pretending and who legitimately doesn't understand that the $1B TVL deposited in an incredibly high risk investment on a single days notice is mostly massive whales
Anyone talking about community vs VC here is either delusional or intentionally misleading.
2/
This is not YFI. Andre built something new and real, that has value.
Sushi is one days effort by any competent dev at most.
It's just whales playing whale games trying to cash in on a hype cycle and the value created by Uniswap.
Not surprised to see @iamDCinvestor talking about this, he's one of seemingly few people on crypto twitter who seems to understand the games whales play when the stakes are raised (and tries to explain them).