- V3’s key features increase the gamification of liquidity providing, favoring deep-pocket, active market makers.
- This increased gamification could redirect fees from retail LPs to larger trading firms.
- Uniswap’s UNI token dropped 20% in the 72 hours following the announcement.
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Uniswap’s key feature increases the gamification of the most popular DEX. But this is a game retail doesn’t have the tools to win.
Everyone’s a Market Maker on Uniswap
After announcements of announcements, the world was finally able to see Uniswap’s plans for its third version. Given that the project’s second version was one of the catalysts for DeFi’s meteoric rise in 2020, the anticipation for this release has been met with similar excitement. Indeed, Uniswap has regularly been at the forefront of innovation, especially for automated market makers (AMMs).
Automated market makers are the cornerstone of decentralized finance. To understand how revolutionary these are, one must first understand market-making functions in traditional finance.
Market makers offer assets at two prices, one for sellers and one for buyers. It profits from the spread between these two numbers. The real business of market makers is not price; it’s volume. The higher the volume, the higher the profit.
Due to the sheer amount of any singular asset needed, only institutions can be market makers in traditional finance. Even popular brokers like Robinhood rely on market makers to provide sufficient liquidity. This allows financial institutions to ever-so-slightly bend the rules of the game, if not directly change them for their own interests or those of their business partners.
Since January, this has been a highly debated topic when retail investors accused Robinhood and market makers of market manipulation.
Being the market maker confers undeniable advantages, and the invention of AMMs in DeFi has been a game-changer. Suddenly, everyone could be the market maker….