jakiro
Preface
The recent craze in the industry has been diverted by the rise of the X402 payment track, the panic of Black Monday, Tuesday, Wednesday, Thursday, and Friday, as well as the rotation of Niu Mo Legend’s privacy sector.
This world is so exciting and noisy.
It’s good to be brave now, after all, a mistake that smart people often make is: trying to optimize something that shouldn’t exist ~ (from Musk). Now calm down, review the wonderful features of successful products in the past, and see which players in the competition have invalid operations, and see which ones are pigs in the spotlight. Only when the wind stops, can we truly see the long-term value in the future.
If you ask, what is the representative track trend this year?
My first choice is Dex. It has been 4 years since the Summer of Defi. Over the past 25 years, there have been many typical products, which have occupied a huge voice in the market from concept to market. The most amazing thing about this track is that when you think that everything you can do is over, the pattern should also fall into place.You will suddenly see a group of dark horses emerging from the details of certain projects.This is true for Hyperliquid in perps, and it is also true for fomo in meme bots.
In addition to the challenges of new platforms, Uniswap, an evergreen tree in Defi, is also constantly innovating. This article will provide an in-depth explanation of the two major moves of uniswap this week.
Uniswapmarket status
Uniswap has processed approximately $4 trillion in transaction volume to date.It is the well-deserved chief Dex platform.
As you can see from the figure below, even if there are new challengers in 25 years, they still occupy 70-80% of the market size on the Ethereum mainnet.
In the last 25 years in October, his trading volume was approximately 138B.Even with monthly fluctuations, the average trading volume is 60-100B.
Market share of various Dex companies on Ethereum
But under the bustle, there are actually not a few challengers, because Uniswap’s TVL is constantly decreasing, which means that the market has better places to pledge. Moreover, uniswap continues to launch v3 and v4, even if they have more optimizations in performance, gas, and LP, they are always competing for a shrinking market with themselves.
The market share of each version of uniswap on Ethereum
And he is not the only one in the entire Dex market
In the cross-chain Swap market, the actual effect of uniswapX is far inferior to the experience optimization of competing product PancakeSwap. Since 2024, its market share has been continuously eroded.Today, the share is only 20% to 30%.
But even so, the potential of this market cannot be underestimated, because Uniswap still has a scale of about 200B in monthly cross-chain swap transactions.
EVM cross-chain Dex transaction volume
There are obviously a bunch of problems here.The most criticized thing is the crotch pulling of uni token itself.Short of its 21-year peak, the current situation is simply appalling.
Can we rely on UNification to win the game at this time?
UNIFicationNew unification proposal
UNIfication, a proposal jointly proposed by Uniswap Labs and the Uniswap Foundation, aims to overhaul the way Uniswap operates – from fee allocation to governance structure to the token economic model.
The more important actions are as follows:
• Enable protocol fees and UNI destruction: Turn on the built-in “fee switch” so that part of the fee for each transaction belongs to the protocol (instead ofAllowned by liquidity providers).This portion of the fees charged by the protocol will be used to burn UNI tokens, thereby permanently reducing the supply of UNI.Therefore, the future usage of uniswap is directly linked to the scarcity of the token.
• Unichain Sequencer fees will be used for destruction: Uniswap now has its own Layer-2 network called Unichain.The fees earned by the Unichain Sequencer (currently annualized revenue is approximately $7.5 million) will also be used for the UNI token burning mechanism.Therefore, each layer of Uniswap (the main exchange and its L2 chain) participates in the same burning mechanism, and as usage grows, the scarcity of UNI tokens will also increase.
• Protocol Fee Discount Auction (PFDA): A new mechanism to internalize Maximum Extractable Value (MEV) and increase Liquidity Provider (LP) earnings.In short, traders can bid to receive temporary fee discounts (i.e., they can trade without paying protocol fees for a short period of time).The highest bid (paid in UNI ) will be used to destroy the contract.In this way, MEV that would otherwise go to bots or validators will be captured by Uniswap and used to destroy UNI.
• 100 million UNI tokensdestroy(Retrospective destruction): In order to make up for the fees that UNI holders “missed” during the fee conversion shutdown period, they proposed to destroy 100 million UNI tokens from the treasury at one time.This is equivalent to destroyingApproximately 16% of UNI’s circulating supply!.
• No more interface/wallet fees: Uniswap Labs will stop charging fees for its products (Uniswap official web application, mobile wallet and API).
• Introduced an annual growth budget of 20 million UNI (allocated quarterly) for Uniswap Labs.
How to understand?
Well, that’s a lot of information, let’s think about it from the perspective of different stakeholders
But the author is not so optimistic. After all, it has always been a big problem to feed back the profits from MEV to LPs and users.And LP also bears impermanent losses simultaneously.
forLPIn terms of
Obviously, the wool comes from the sheep. For example, in the Uniswap v2 version, the transaction fee will be adjusted from 0.30% (all owned by the liquidity provider) to 0.25% owned by the liquidity provider and 0.05% owned by the protocol.Therefore, after the protocol fee is enabled, LP’s profit from each transaction will be reduced by 1/6.
Although this proposal also includes the Protocol Fee Discount Auction (PFDA) scheme, it is also simultaneously expanding the pie, such as internalizing part of the market execution value (MEV), guiding external liquidity and charging a certain fee, and generally increasing transaction volume.
Some analysts in the market have calculated that this mechanism will increase LP’s income by approximately US$0.06 to US$0.26/USD10,000 in transaction volume. Considering that LP’s profits are usually very low, this is of great significance.
For ordinary users
First of all, user handling fees will be directly reduced. On the one hand, high-end users can use the PFDA mechanism combined with auctions to obtain handling fee coupons.On the other hand, the handling fee for using the uniswap app page is directly canceled.
But UNI can finally benefit from the success of Uniswap, which is of great significance, because the previous uni was only a governance token and did not actually share the transaction fees of uniswap itself (previously it was all given to LP).
Moreover, UNI itself has formed a deflationary asset closely related to cash flow, rather than a passive governance token.
This is obviously based on Hyperliquid’s governance model. From a certain perspective, destruction and repurchase are the same.
For Lab operations
Secondly, in the past, employees were paid through additional handling fees based on the usage of the app, but now they are paid through a budget of 2kwUni. Judging from the current market price,
The R&D operating budget is US$140 million, which is very high.
Sometimes I wonder if he did this just for the 2kwuni. Obviously this scale is much larger than the previous fee income.
Moreover, Uniswap Labs and the Foundation will also merge: Labs, which is responsible for protocol development, and the Foundation, which is responsible for funding/governance, plan to merge.Most of the foundation’s team members will join Labs to form a joint team focused on Uniswap development.Looking at it this way, there is quite a new atmosphere of making great efforts to improve the situation.
Is this mechanism worthy of long-term optimism?
It may be that there were too many black swans this week, because the increase in valuation brought about by the destruction soon fell back.
Putting aside this external factor, the author believes that its short-term fluctuations are due to the initial announcement that everyone quickly got it that it will be destroyed, so it will grow, but destruction is not the source of long-term value.
Uniswap hopes that increased trading volume, MEV sharing and other incentives can offset the impact of reduced returns over time. How to stabilize LP’s returns?
In the initial chart, we have seen that long-term uniswap LPs are gradually migrating away.
And in the same way as competing products (all of which are LP), those who are uni will have to hold a large number of conventional tokens, which are often the ones with the biggest losses in black swans, which will also amplify the impermanent losses of LP.What about becoming a mainstream platform currency?Ethereum staking itself has a clear annual staking return of 4%, while those doing sol can obtain 8% or even higher returns as the market and Jito capture MEV, without having to worry about the sudden rise and fall of altcoins.
Therefore, the departure of LP will ultimately affect the depth of transactions, increase transaction slippage, or ultimately damage the user level.
Therefore, although UNI is the biggest change in Uniswap since the launch of UNI token.It solves the long-standing problem of the lack of direct correlation between UNI token value and Uniswap’s actual performance.
In the long run, competition among 25-year-old decentralized exchanges (DEXs) is extremely fierce, and Uniswap’s size means that its liquidity can withstand fluctuations for a period of time.It is reasonable to launch this move at this time, but it will inevitably bring shock.
CCA(Continuous Liquidation AuctionsContinuous Clearing Auction)
This is the new protocol CCA recently jointly released by Uniswap and Aztec, which is specifically used for price discovery and the initial stage of liquidity for new assets.
After the auction process ends, the project team can import the raised funds and tokens into Uniswap v4 and directly connect to the secondary market transactions.
The evolution of asset pricing schemes
In fact, how to price has always been a huge issue. In the previous mechanism interpretation of uniswapX and uniswapV2, the author mentioned that objectively speaking, uniswap made its fortune by seizing the demand for pricing of this new wave of assets.
After all, according to the number of amm tokens on the chain, the formula x*y=k is the easiest way to quickly return to a reasonable price in the EVM architecture with limited performance.
However, this mechanism is not perfect, with huge slippage, MEV attacks, and impermanent loss of LP, which are all key to the impact.
Therefore, fair price discovery and fair initial token distribution have always been important propositions for the dex platform.But today, most releases still feel like backroom deals masquerading as “community events.”Insiders get the certainty, everyone else gets the leftovers.
Later, various platforms also made many attempts on how to price new assets, such as team airdrops, Dutch auctions, fixed price sales, LBP, Bonding Curve, Fee mint, fair launch, etc.
Moreover, the above solution still has flaws, such as:
1. Fixed-price sales can lead to pricing errors and priority competition, resulting in insufficient or unstable liquidity;
2. Dutch auctions create a time game that gives professionals like us an advantage over real players.
3. One-off auctions reduce demand and often lead to last-minute panic buying.
4. Various typesCurveCurves are path dependent and susceptible to human manipulation.
CCA’s design philosophy
In essence, CCA is a protocol independent of Uniswap v4 and is a complete offering and pricing framework.But he will use the hooks mechanism of Uniswap v4 to connect with the AMM core.In the entire workflow of issuance, it is the CCA Auction module in the figure below.
It is a configurable auction framework, and it is all conducted on the chain (this is better than uniswapX).The 5 stages are
Configuration phase -> Bidding phase -> Apportionment phase -> Liquidation phase -> Injection phase
-
Configuration phase: The auction initiator first sets rules on the chain, such as the start and end time, how many “rounds” or time periods the auction is divided into, what proportion of tokens are released in each time period, the minimum price (floor price), and additional configurations, such as whether whitelisting/authentication is required, and how to import liquidity into Uniswap v4 after the auction ends, etc.
-
Bidding stage: During the auction, participants can bid at any time. Each bid contains two parameters: how much money to invest, and the highest acceptable unit price.
-
Apportionment stage: The system will automatically spread a bid according to the remaining “release periods”.Therefore, the earlier you bid, the more time periods you can participate in and the opportunity to participate in liquidation in more rounds.
-
Liquidation phase: In each round, the system will accumulate all valid quotes in this round, and then use unified rules to find a price that is just enough to sell all the tokens to be released in this round, as the final transaction price of this round.
-
Injection stage: After the auction is over, participants can receive the tokens they obtained and the untransacted funds; the agreement will follow the pre-agreed strategy to inject the raised assets and the other side assets prepared by the project party into Uniswap v4, officially opening the liquidity pool of the secondary market.
How to understand
To sum up, it is actually to divide the one-time auction into multiple times, and spread the game during the auction to multiple times. This solves the problem that in the previous one-time auction, a bunch of transactions were always completed in the last 1s (before the block is about to be produced), making the auction a black box again.
But is this good enough?
Obviously, the complexity will deter many new coins from being launched on this platform.And the efficiency has become lower.Objectively speaking, uniswap’s auction logic has not been very successful since version X, and too many Defi protocols leave the complexity to users.
The author believes that it is difficult to replicate this set as the uniswapV1 version, and the success of 200 lines of code in rewriting the history of new currency issuance and pricing.Moreover, it relies on the V4 version, and its own development can be seen from the above data, which is 5 times different from the mainstream V2V3.
About asset growth and value discovery
Focusing on asset growth, what I talked about earlier is the initial pricing platform. I would like to add the pricing logic of the medium and large development stage.
Although trading financial derivatives, especially the perpetual platform, is the most profitable of all trading links.
Many people were distracted by this, butIn fact, Perps can help with asset pricing, which is its root value.
For particularly small assets, you can go to uniswap or the meme platform. Then when you grow into small and medium-sized assets, you can go to BN’s Alpha platform or the CEX platform of other small and medium-sized firms. But objectively speaking, when you went from small to large assets 25 years ago,There is a lack of pricing platforms from a decentralized perspective in the market.
Therefore, during this short period, it is easy for the market to misjudge, which often results in investors exiting at the speed of light after assets are listed on the exchange.
First of all, because Perps are futures, you need to know that if you want to set prices in the market, you have to put assets on them. Your liquidity will be in the market and locked there, which is actually detrimental to an asset.
Then if your assets are too small, then you can lend coins to the market maker, which is actually very easy. Others often lose their small coins, because they do not cooperate well with the market maker, and the two of them speculate on the price, and then the official ships, or when the official purchases goods, he speculates on the price.
Therefore, due to the influence of many market makers, this small currency cannot take off, and then in the medium currency stage, you have to put liquidity on it to form a higher depth, and the cost to the project side becomes very high, and then the income of LP becomes unstable and unclear, because because of the volatile currency, people are not willing to hold it for a long time.
So from this point of view, in fact, since the perpetual platform is a futures, you don’t actually need to deliver anything, you just need to think that it has this price, so it is a very good pricing platform for mid-asset.
Recently, I have faced the transition between bull and bear, and the author has experienced two cycles. Objectively speaking, bull and bear are constantly changing, and those who can survive long enough will definitely be the type of platform that captures long-term demand.
