With the total value locked in decentralized finance on Ethereum now $89 billion, the market is eagerly waiting to see if the launch of Uniswap v3 could be the catalyst for DeFi’s next big bull run.
Uniswap v3 promises advanced new features and opportunities for yield generation with its launch scheduled for Wednesday.
Uniswap is emphasizing three new features for liquidity providers — customizable capital deployment across a market’s entire price curve in the form of concentrated liquidity, tiered market maker fees offering boosted returns for volatile pairs subject to impermanent loss, and cheaper access to oracles for improved data integrity.
The expected reduction in Ethereum’s fees due to the EIP-1559 upgrade come July is also expected to boost v3’s value proposition, and the latest version of Uniswap will also launch on Optimism after the layer-two rollups solution goes live.
With its new concentrated liquidity feature promising users’ unique and customizable yield products, a nascent DeFi sector specializing in tokenizing future yields appears poised to flourish.
1/ Uniswap v3 will improve capital efficiency and liquidity for synthetic tokens built with UMA.— UMA (@UMAprotocol) May 3, 2021
The defining feature of this upgrade is "concentrated liquidity." It grants individual liquidity providers more control over how they provide liquidity.https://t.co/sysXbun0qg
Emerging projects like Alchemix have recently enjoyed meteoric growth from the promise of tokenizing future yields, while the likes of Alchemist Coin are using Ampleforth’s v2 Geyser contracts to allow users to create nonfungible tokens representing claims to future Uniswap liquidity provider fees.
Furthermore, new decentralized exchanges are innovating to facilitate trade in tokenized future yields, with Pendle raising $3.5 million from major investors last month to build an automated market maker specializing in time-degrading assets.
Commenting on the completion of Pendle’s public LBP offering earlier this month, Adam Cochrane, a partner at Cinneamhain Ventures P, described the forthcoming exchange as creating “an entirely new category of market in the DeFi space.”
1/23— Adam Cochran (@adamscochran) May 1, 2021
One of the newer small caps I've been wanting to cover recently is $PENDLE (@pendle_fi).
I think they are one of the only new projects I've seen that I think creates an entirely new category of market in the defi space. pic.twitter.com/by1u3PZabT
Uniswap v2 in history
Uniswap v2 launched on Ethereum’s mainnet on March 18, 2020. Back then, the decentralized exchange had roughly $13.7 million in total value locked, while the broader DeFi sector’s TVL was roughly $550 million.
Despite attracting controversy early on for the popularity of its open listing policy among scammers and impersonators and its relatively high trade fees compared to some centralized platforms, Uniswap’s TVL pushed above $100 million in August as the sector’s TVL surged to $7.5 billion by September.
After facing a series of vampire mining attacks from rival yield farming decentralized exchanges in a bid to siphon away the platform’s liquidity, Uniswap airdropped its native governance token to the v2 protocol’s users in September and closed the month with a TVL of more than $2 billion.
While the DeFi markets cooled in Q4 2020 and Bitcoin moved to new all-time highs above $20,000, the sector’s TVL has sky-rocketed since the start of 2021, while value locked in Uniswap grew from $2.15 billion to $8.53 billion, according to DefiLlama.