Uniswap V3

Market Making

Uniswap is one of the largest decentralized exchanges that allows anyone to trade crypto assets and provide liquidity to earn trading fees. Uniswap v3 is the latest version that supports ERC-721 tokens, introduces a new concentrated liquidity model, and includes a flexible fee structure.

Risk Rating
Best
Protocol Code Quality
Protocol Maturity
Protocol Design
Summary
What we like
Uniswap V3 introduces the concentrated liquidity AMM model to boost trading volume and lower fees.
What we like less
Using Uniswap V3 has a higher learning curve than other protocols as users have to specify multiple custom parameters. The custom price range also exposes liquidity providers to greater impermanent loss.
What it means for you
Uniswap V3 enables liquidity providers to earn higher returns on their capital, significantly increasing capital effiency relative to V2.
Information
Info
  • Website
  • Token: UNI
  • Tags: Market Making
Key Metrics
  • TVL: $3.3B (Rank #9)
  • TVL Ranking by Market Making: #0
  • Blockchain: Ethereum, Arbitrum, Base, Polygon, Optimism, Celo, Binance, RSK, Avalanche, Scroll, Linea, Boba, Blast, Filecoin, zkSync Era, Moonbeam
  • Chain TVL
    • Ethereum: $2.62B
    • Arbitrum: $282.24M
    • Base: $158.4M
    • Polygon: $104.39M
    • Optimism: $67.65M
    • Others: $81.81M
Risk Assessment
Best
Protocol Code Quality
  • Code reviewed by several experienced auditors including Trail of Bits and ABDK
  • Public team promotes accountability
  • No documented protocol hacks since launch
Protocol Maturity
  • Core protocol launched in 21; maturity over one year minimizes technical risk as smart contracts are well battle-tested
  • Top 1% by total value locked reduces risk
  • Core contracts require on-chain voting for parameter updates
  • Timelock is at least 48hrs, which provides users with sufficient time to exit if any malicious upgrades are approved
  • Low voting power concentration reduces risk
Protocol Design
  • No death spiral concerns
  • This protocol is susceptible to risks related to decentralized exchanges (DEXs), such as impermanent loss
  • Uniswap is one of the most copied protocols in DeFi as it pioneered the concept of automated market makers (AMMs), as well as the concept of concentrated liquidity (Uni V3) that lets you choose your own price range to provide liquidity
Things to know about Uniswap V3

How Uniswap V3 works

Uniswap V3 is an automated market maker (AMM) that introduces the concentrated liquidity model. Concentrated liquidity is a new AMM model where liquidity is allocated within a custom price range. Previously in V2, liquidity was distributed between 0 and infinity, uniformly along the price curve. V3 allows liquidity providers (LPs) to concentrate their capital on smaller price intervals or ticks. This offers traders deeper liquidity and allows LPs to earn more with less capital required. However, this also increases impermanent loss as rising and falling asset prices can result in the position's liquidity being out of range (e.g. position is fully one asset) and no longer earning fees.

How Uniswap V3 makes money

Uniswap makes money via protocol fees that can be optionally turned on by UNI holders through a community governance proposal. Whenever a liquidity pool is created, protocol fees are set to 0 by default. Uniswap could then receive a fraction of these transaction fees. Currently, the protocol does not charge protocol fees and all fees are earned by liquidity providers.

How you make money on Uniswap V3

In order to incentivize users to create trading markets on their platform, Uniswap must pay these users who are providing liquidity into these pools in the form of swap fees. Uniswap currently distributes all of the swap fees earned for each pool directly to the liquidity providers that is proportional to the amount they deposited. For Uniswap V3, the fee tiers charged for every transaction are 0.01%, 0.05%, 0.30%, or 1% depending on the specific pool.

Uniswap V3 Pools
Uniswap BTC-ETH 5bp Market Making
9.5%
Yield
$78M
TVL
Risk
A
Protocol
Uniswap V3
Chain
Ethereum
Uniswap BTC-USD Market Making
42.5%
Yield
$41M
TVL
Risk
B
Protocol
Uniswap V3
Chain
Ethereum
Uniswap ETH-UNI Market Making
13.1%
Yield
$25M
TVL
Risk
A
Protocol
Uniswap V3
Chain
Ethereum
Uniswap ETH-USD Market Making 30bp
26.9%
Yield
$20M
TVL
Risk
B
Protocol
Uniswap V3
Chain
Ethereum
Uniswap ETH-USD Market Making 5bp
25.1%
Yield
$17M
TVL
Risk
B
Protocol
Uniswap V3
Chain
Ethereum
Uniswap ETH Market Making
6.8%
Yield
$5M
TVL
Risk
B
Protocol
Uniswap V3
Chain
Ethereum
Uniswap LDO-ETH Market Making 30bp
8.1%
Yield
$5M
TVL
Risk
A
Protocol
Uniswap V3
Chain
Ethereum
Uniswap USD Market Making 1bp
6.4%
Yield
$4M
TVL
Risk
B
Protocol
Uniswap V3
Chain
Ethereum
Uniswap ETH Market Making
2%
Yield
$2M
TVL
Risk
C
Protocol
Uniswap V3
Chain
Ethereum
Uniswap LQTY-ETH Market Making 30bp
7.2%
Yield
$2M
TVL
Risk
A
Protocol
Uniswap V3
Chain
Ethereum