DeFi's Largest Dex Overhaul Paves Way to Sustainable Future and More Profitable Trades
Also, tBTC paused, Argent upgrade, Gnosis' new features.
|May 19, 2020||3|
Hello Defiers! Lots going on in DeFi:
Uniswap upgrade paves way to sustainability
tBTC was paused after team found bug
Argent upgrade includes suite of DeFi apps
Gnosis users will be able to interact with Ethereum directly
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Uniswap V2 to Boost Profitability for Traders and Protocol
Uniswap Exchange, the largest decentralized exchange by trading volume, was overhauled yesterday. The change aims to improve profitability for liquidity providers, reduce price slippage for traders, limit attack vectors, and pave a path so that building the open source protocol can become sustainable.
Unsiwap’s liquidity model allows anyone in the world to contribute to a token pool of their choice and earn a pro-rata share of the 0.3% trading fee. To date, this has aggregated roughly ~$5M in fees to providers since launch, with volume steadily rising over the course of the past year.
But providing liquidity to Uniswap V1 required liquidity providers (LPs) to post capital in the form of 50% ETH and 50% the target pool asset (say DAI). While effective for liquidity depth, this model created friction for LPs as they were forced to have exposure to ETH while commonly incurring impermanent loss - meaning that the fees they earned were often less than what they could have made by simply holding the token(s) on their own.
With Uniswap V2, LPs can create ERC20 / ERC20 token pairs, meaning the DEX has drastically expanded its capacity for users to create niche token pairs, all while mitigating the need for ETH as a primary form of collateral.
This change ties into the larger narratives of optimized DEX liquidity, with projects like Balancer and Bancor V2 all competing to provide the easiest onramps for DeFi users to put their capital to work.
Image source: Dune Analytics and Matteo Leibowitz
One of the main highlights of V2 is it introduces a path to sustainability. In the original announcement post:
“The code for Uniswap V2 includes a small protocol charge mechanism. At launch, the protocol charge will default to 0, and the liquidity provider fee will be 0.30%. If the protocol charge is switched on, it will become 0.05% and the liquidity provider fee will be 0.25%.”
The post further explains that these percentages can be modified as fit, and ultimately governed by the community - likely in the form of a protocol DAO.
While this protocol fee likely won’t come into play for a few months, it adds another incentive for users to use the exchange, both as traders and as liquidity providers. Building off other DeFi governance models and the recent trend of the SAFG model, we can expect those who contribute to the protocol today to receive upside in the form of governance potential when that change goes live.
It’s likely that those using the protocol will receive exclusive tokens to govern (and possibly receive a claim on) protocol fees, similar to FutureSwap and FST or with Compound and COMP. If/when those tokens become tradable, LPs would benefit from trading fees and being the first holders of a Uniswap-native token which could have strong secondary market demand.
Long story short, it’s a good time to be proactive about earning a stake in the financial primitives of tomorrow.
What Else is New
Facelift: Uniswap’s already sleek design got a facelift and the products information aggregator - uniswap.info - includes more details for tracking volume, liquidity and trading history.
ERC20 / ERC20 Token Pairs: Create a token pool with two ERC20 tokens (DAI/USDC) without having to post ETH as collateral.
Uniswap Price Oracle: Custom oracles geared at mitigating the price manipulation and reliance on external sources to value collateral in the Uniswap ecosystem.
Flash Swaps: Take out a loan of any size on any ERC20 token so long as it is repaid in the same transaction.
While the upgrade was much anticipated, distributed liquidity migration will take time. Using the migration tracker as a reference, only 3% of Uniswap’s existing liquidity has been migrated to V2 at the time of writing. Users can seamlessly migrate their liquidity from the V1 predecessor to the golden child V2 in a couple clicks.
V2 adds a prompt to its front-end when users are bound to experience slippage as a result of the still low liquidity, directing traders to V1.
While this is likely to last only a few weeks, it is interesting to note that a protocol which has garnered so much traction is largely reliant on its user base to adopt the new upgrade. This compares with centralized counterparts like Binance, which simply forces upgrades on their users.
Just as with V1, anyone can create their own token pool and as expected, we’re already seeing a number of novel pools being created on V2 just a day after launch. It will be very exciting to see what trading pairs pop up, as we’re already seeing stablecoins and interest-earning asset pairs taking form less than 24 hours after launch.
Latest Bitcoin on Ethereum Project Was Cut Short
The team behind tBTC, an Ethereum token representing BTC deposits, paused the system after finding a bug. The project had gone live just two days earlier. Thesis, the company building the Keep protocol, which supports tBTC, used a pause switch. The so-called “red level” can only be used once, and will flip back on and start accepting new deposits on May 28.
The project was audited by ConsenSys Audits, and a second audit was scheduled to start yesterday. Thesis said on Twitter it’s working to return funds totaling about 7 BTC (~$69k) to users and expects to release a post-mortem today. Thesis founder Matt Luongo estimates it will take 1-2 days to return the funds and says the code had been fixed as of Sunday night.
Thesis uses its Keep protocol to store BTC deposits exchanged for tBTC without requiring third parties to bridge BTC and Ethereum, which would bring more liquidity into DeFi and enable holders to use BTC in DeFi dapps, for example to borrow against their bitcoin in a trustless way. Thesis announced a $7.7M fundraising round in early April in a private token sale.
One lesson from this: An audit doesn’t necessarily mean a project is safe. Another one, the “De” in DeFi is the hardest part to get right. For now, more centralized projects like WBTC continue to dominate Bitcoin on Ethereum
Argent Upgrades to Include Full Suite of DeFi Apps
Argent, a non-custodial Ethereum wallet, upgraded to include at least seven DeFi apps. “Argent is now the easiest way to access DeFi, starting with TokenSets, PoolTogether, Aave, Uniswap V2 liquidity pools, Compound, Maker and Kyber,” co-founder Itamar Lesuisse said in a blog post yesterday.
With the upgrade, Argent is becoming a one-stop shop for mainstream users to access open finance. Its integration with Wyre allows users across many countries to go from their local currency to crypto directly via the wallet, rather than have to go through a centralized exchange. Once they have crypto, users can start using DeFi apps to invest, borrow, store and send. Argent has further simplified use of these dapps, which already require a handful of steps. The wallet is non-custodial, meaning users control their private keys, but its design includes a safety net to more easily recover lost passwords and the ability to approve large transfers.
Gnosis Wallet Users Can Now Directly Talk to Ethereum
Gnosis Safe Multisig, a non-custodial Ethereum wallet, launched an interface to allow users to directly interact with Ethereum smart contracts. The feature is aimed at increasing flexibility and allow interaction with any Ethereum application, even if they haven’t been added to the Gnosis interface. The team also launched a desktop version of the wallet to remove dependency of its hosted web interface, “adding an additional layer of security for Safe interactions,” according to the blog post.
The U.S. Patent and Trademark Office (USPTO) published today that Visa V has filed a patent application to create digital currency on a centralized computer using blockchain technology, Forbes reported.
J.K. Rowling was bombarded with crypto enthusiasts and trolls explaining bitcoin over the weekend after she asked about it. She apparently enjoyed her foray into crypto Twitter and trolled right back today.
BeInCrypto @beincryptoWhat are your thoughts of @jk_rowling joining the $BTC community? Time for Potter to go for plan #Bitcoin? https://t.co/nt4NqLGa9h https://t.co/qnHJyU6nHa
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About the founder: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.