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, the original author: Alex, compiled by Odaily translator Katie Koo.

Originally, I just made a Dune dashboard about Uniswap, but it caused a sensation in the DeFi circle. Disturbingly, it exposes the true colors of those who think they invented the "financial perpetual motion machine." This is a story about graphs, cookie data, arrogance, social proof, and the future of DeFi.

Last month, I analyzed the "order flow toxicity" of the Uniswap V3 ETH/USDC pool. Uniswap V3 LP losses on ETH/USDC estimated at $100M.

After deducting the cost of the original LP holding currency, the conclusion is shown in Figure 1:

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Figure 1<Loss in case of impermanent loss. The chart shows that LP fees are about $100 million lower than IL this year.

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Further Interpretation of Figure 1 Data

Figure 1 measures the "markout" of each transaction in the ETH/USDC pool on Uni V3, that is, the unrealized book profit and loss of transactions using future prices (measurement of profit).

For example, 5 minute mark = unrealized profit and loss 5 minutes after the trade occurred.

This is a measurement method commonly used in traditional finance by the HFT high-frequency market maker I worked before. It measures the cost-effectiveness of executing trades on multiple timeframes. The "boundary" indicates the profit and loss we realize, and it will be cumbersome to find exactly each LP and transaction method.

LP Unrealized P&L after 5 minutes: - $21 million

LP Unrealized P&L after 1 hour: $56 million

LP Unrealized P&L after 1 day: -$97M

LP Unrealized P&L after 7 days: -$92 million

I'm personally neutral on this view. The LP "boundary" of ETH/USDC has fallen heavily recently.

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Uniswap team's rebuttal to Figure 1 and confrontation with analysts

@teo_leibowitz, @xin__wan, and @AustinAdams10 from Uniswap Risk & Research have a scathing post saying I'm accusing Uniswap of charting and ignoring "cookie" data in my analysis, claiming my analysis is flawed in every way it is wrong.

Uniswap's team claims, and I didn't count fees in my analysis, that the Uniswap ETH/USDC pool has actually made a profit of $150 million since its inception. The difference is so huge.

@0xShitTrader discovered that Uniswap had a bug in its query that was throwing out all LP buys, more than half of all LP trades.

After fixing the error, their analysis is exactly the same as the original chart, showing nearly $100 million in LP losses in 1 day.The issue was immediately escalated to their team. It's been over 5 days and they still haven't retracted their statement asking me to explain the truth. For me, it is important to share the real status quo of the DeFi world.

The fact that the Uniswap team thinks it's reasonable to make a $150M profit on providing passive liquidity in the ETH/USDC pool just blows my mind.The inclination of the Uniswap team is clear.This misinformation and lack of truth from Uniswap has spread like a virus among KOLs in the DeFi community who trust the Uniswap brand but haven't delved into the data themselves.

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The State of the DeFi World

In the ETH/USDC pool, funds are over-allocated to provide liquidity. This is not my personal attack on AMMs or the Uniswap team, it is the reality. DeFi is in an existential crisis and as a community we need to be honest about what we have achieved.AMMs are an excellent tool for trading stablecoins and increasing liquidity for long-tail assets. Fighting CeFi technology is something we as a community are still grappling with.

There are too many on-chain funds looking for yield, which leads to a negative risk premium on almost every opportunity, which the Uniswap pool cannot afford.

There are over $70 billion in stablecoins on ETH looking for use cases. There are not enough use cases for this type of capital, especially in an environment where the risk-free rate of return exceeds 4%.Most people don't realize that DeFi is a preteen teenager confused about his identity. We are being chased by capital, and most of the DeFi community takes it for granted. DeFi is racing against time, trying to convince capital to stay.

A good friend of mine recently talked to me about the difference between precision and accuracy, which I think is the root of DeFi's problems. Precision is the ability to hit a target. Accuracy is making sure you're aiming at the right target.

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What problem is DeFi actually trying to solve?

During the last cycle, the world needed a growth narrative (aka unregulated casino) to inject historic liquidity. As a community, we need to abandon the promise of "financial alchemy" and "financial perpetual motion machine" in the previous cycle, and focus on the long-term sustainable innovation sources that DeFi can really solve.