Interview with DODO: Uniswap V2 is the swan song of AMM

In the early morning of March 24th, Beijing time, Uniswap, the leading DEX, officially released an overview of the V3 version upgrade that the community has long awaited.

A key improvement of Uniswap V3 is "liquidity aggregation", which allows liquidity providers (LPs) to actively deploy their funds within a certain price range, thereby improving capital utilization efficiency and liquidity depth, and reducing transaction slippage. This improvement reminds many people of DODO, which adopted the active market making algorithm (PMM) very early.

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Q1

Odaily：Uniswap officially disclosed the upgrade details of the V3 version today. If you could evaluate this upgrade in one sentence, what would you say?

Radar Bear:secondary title

Q2

Odaily：The update of the Uniswap V3 version in the market-making mode has made many people think of DODO. In your opinion, what is the specific difference between the way Uniswap will adopt and DODO?

Radar Bear:image description

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More intuitively speaking, Uniswap’s approach is to centralize liquidity on the AMM curve. In different price ranges, there will be one liquidity layer after another with different levels. The transition is not smooth; DODO uses the PMM algorithm to aggregate the maximum liquidity near the market price according to the quotation of the external oracle, and then smoothly decrease to the left and right, and the slope of the decrease can be adjusted freely.

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Q3

Odaily：In your opinion, under the new market-making model based on Uniswap, how will the impermanent losses that LPs need to bear change?

Radar Bear:get bigger.

Let's first look at a concept-liquidity cost, which can be understood as the "rent" cost that DEX pays to LPs in order to obtain liquidity. Since it has not yet escaped the AMM model, we can look at Uniswap V3 from the full price range The overall cost and risk of the version have not changed, so the unit price of the liquidity cost has not changed. The new version only bundles risks and benefits together for a certain cutting process.

The changes in V3 will allow LPs to concentrate their liquidity in a certain period of the full price range. For LPs, this can be understood as the concentration of income in this period, and correspondingly, the concentration of risk.

From the perspective of retail investors, the way of making markets on Uniswap will also change in the future. First of all, stable currency trading pairs. Of course, users will choose to concentrate liquidity near the anchor price. This means that V3 will trade anchor coins such as Uniswap Curve. The platform will be a devastating blow; but for non-stable currency trading pairs, how to choose the so-called "reasonable" price range will be a big problem. The market is extremely difficult to predict. Although retail investors have more subjective choices, the choice If the price range is wrong, you will get nothing. If you withdraw and re-invest, you will face new gas costs. The market-making experience is far less relaxed than the V2 version.

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Q4

Odaily：Some users mentioned to us a potential extreme possibility - "When a large amount of liquidity is concentrated in a certain price range, the depth of liquidity outside this range will be relatively reduced, and large funds may use this mechanism to trade in price When approaching the edge of the range, a 'push' will trigger a short-term liquidity collapse and disrupt Uniswap's oracle quotations." Since a large number of upper-level projects directly use Uniswap's oracles, will this situation cause large-scale disruptions? Collateral effects?

Radar Bear:This possibility exists. Considering that a large number of upper-level applications use Uniswap’s oracle machine, this potential situation is very dangerous. There may even be targeted monitoring tools on the market to calculate in real time how much money is needed to push the quotation in the Uniswap pool to what level.

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Q5

Odaily：Another detail of the V3 upgrade is that in the future, LP Token will no longer be based on ERC-20, but will become individual NFTs. What impact will this have? Will it lead to a decline in composability?

Radar Bear:My understanding is that Uniswap's new LP Token will adopt the ERC-1155 standard instead of ERC-721, which means that LP Tokens with the same price range will still be homogeneous, and other LP Tokens with different price ranges will be is completely non-homogeneous.

If so, the Uniswap V3 version of LP Token will still have some room for composability, but compared to the V2 version, it will indeed be reduced. However, considering that the new version adopts a new market-making design, Uniswap can only do so.

DODO has long considered that non-standard assets will be popular in the future, and we have just announced the NFTZero-cost liquidity solutionsecondary title

Q6

Odaily：In the choice of Ethereum’s native Layer 2 solution, Uniswap chose Optimisic, and DODO chose Arbitrum. Can you ask the specific reasons for choosing Arbitrum?

Radar Bear:Leaving the conclusion first, because Arbitrum is better.

Specifically, there are two reasons. One is that Arbitrum will give more support to the project side. Compared with Optimisic, Arbitrum is much more enthusiastic, and they will actively help you solve all problems in the integration process; the second reason is that Arbitrum The requirements for its own products are very strict. For example, if a partner intends to adopt other Layer 2 solutions, Arbitrum will definitely ask the end, try to figure out what services the other party can provide that they cannot provide, and then quickly resolve it.

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Q7

Odaily：With Uniswap officially disclosing the details of the V3 version upgrade, mainstream DEXs have basically announced their development plans for a period of time in the future. From the perspective of contestants, how do you view the competition and development of the DEX track in the future?

Radar Bear:The DEX track has been rolled in all directions, and there is no blue ocean to speak of. Nowadays, there are a large number of people in every subdivision of the DEX track, and any new idea will not survive for three months, so I think that the future of this track will be development execution and product delivery capabilities.

Judging from the rhythm of the V3 version, the speed of Uniswap can be said to be slow. The situation of Sushiswap is similar. Its long-announced IDO product has not yet landed. On the contrary, those teams with "less people talking too much" will be more competitive in the future, such as 1inch and 0x, and the V2 version of Balancer has a great idea, but the approach is very radical, and the contract is difficult to implement. It remains to be seen how the product delivery will be.