On April 1, 2023, the copyright license of Uniswap V3 will expire. So, what does this mean for the entire DeFi market and the Uniswap fork project?
Uniswap and Copyright License
Uniswap, a protocol that launched in 2018 at the Ethereum Foundation’s annual Devcon conference, has become one of the top decentralized exchanges with over $1 billion in trading volume.
After the release of the upgraded version of Uniswap V2, the protocol suffered from vampire attacks from Sushiswap and many other platforms. This caused Uniswap to lose a large number of users, liquidity and trading volume.
The upgraded version of Uniswap V2 is Uniswap V3, which provides centralized liquidity (CLMM). This feature allows liquidity providers to specify within what price range their liquidity will be available for token pairs. This increases capital efficiency by more than 4,000 times and generates significantly higher expenses.
Another Uniswap V3 competitor that uses centralized liquidity is TraderJoe. The protocol uses a liquidity book that allows liquidity providers to choose the price range in which they provide liquidity, helping to improve capital efficiency.
As of March 2023, Uniswap V3’s 24-hour trading volume totaled nearly $1 billion, according to CoinMarketCap. The protocol has a total value locked (TVL) of $2.85 billion, according to DeFillama.
UniswapV3 is developed on Ethereum (ETH) and implements the second layer on 5 other chains such as Arbitrum and Optimism.
In order to avoid duplication like Uniswap V2, the upgraded version of Uniswap V3 includes a code license (Business Source License). This license prevents projects from forking the Uniswap V3 code and enjoying the advantages provided by the protocol, helping Uniswap maintain its leading position.
However, this situation did not last long.
Are opportunities coming for other AMMs?
In early April 2023, the copyright license of UniswapV3 will expire. Anyone and any agreement can fork the (Uniswap V3 open source) source code for commercial use, which has attracted the attention of Uniswap users.
This opens the door for protocols such as SushiSwap, PancakeSwap, QuickSwap, and other Uniswap fork protocols to directly compete with Uniswap. Many new Uniswap V3 fork projects will appear, and Uniswap V2 fork projects will continue to upgrade to Uniswap V3, providing similar functionality but more incentives. This may affect Uniswap’s current industry leadership.
On the positive side, this will benefit users as they can enjoy more features and incentives. Liquidity is also distributed across multiple DEXs in a more decentralized manner, resisting monopoly.
PancakeSwap, the leading DEX protocol on BNBChain, plans to upgrade to Pancake Swap V3 in early April 2023. The upgrade includes features such as better liquidity provision, transaction fee adjustments, trading incentives, and yield farming tools... It is expected that this release will use a forked version of the Uniswap protocol V3.
OsmosisZone is developing Uniswap V3’s centralized liquidity features into the protocol. Evmos DAO has also forked Uniswap V3 through a project called Forge DEX, which is currently in the testnet stage.
Additionally, while Uniswap attempts to control its liquidity on major blockchains, many DEXs have already seen widespread adoption.
For example, on Arbitrum, Camelot’s TVL has grown significantly over the past time. On Polygon, Quickswap is the project with the highest TVL. On BSC, Pancakeswap is the protocol that dominates this blockchain.
More DEXs using Uniswap V3’s centralized liquidity model will stimulate the development of active liquidity management protocols. The typical Gamma Strategies protocol has experienced strong TVL growth in the past.
What was Uniswap’s reaction?
Uniswap is racing against time to develop multi-chain (multi-chain) functionality to be deployed before the license expires. After a long wait, the community approved the proposal to deploy Uniswap v3 on BNB Chain on February 10. The delay caused Uniswap to lose most of the potential TVL on BSC.
When it comes to BNB Chain, Uniswap will face competition from PancakeSwap, which is currently the largest DEX on BNB Chain. While Uniswap’s trading volume reached the $50 million mark over the past week, its performance is a fraction of Pancakeswap’s $13.8 billion. However, over time, if Pancakeswap does not change its protocol, Uniswap may gradually occupy Pancakeswap’s market share.
Currently, the Uniswap community has voted to deploy Uniswap on Avalanche, Kava EVM Network, and Gnosis Chain. It is expected that Uniswap will also appear on many other important and emerging blockchains in the future.
What to expect from Uniswap V4?
There are rumors that Uniswap is developing Uniswap V4, an upgraded version of Uniswap V3. This version can overcome some of the shortcomings faced by Uniswap V3.
One of the typical features that may appear in Uniswap V4 is a flexible fee model based on asset volatility. This model will allow liquidity providers on high temporary loss pairs to receive larger rewards, rather than requiring liquidity providers to guess which pairs are volatile at different times.
Recently, Uniswap has also promoted the application of proposal EIP1153. This solution introduces temporary storage to Ethereum, allowing memory to be used only for the duration of a transaction. This temporary storage makes smart contract design cleaner, optimizes gas costs, and simplifies EVM design. However, this solution was not a big priority and was not included in the next Ethereum upgrade plan.
The user experience in Uniswap V3 is still complicated, so in the new upgraded version, Uniswap can improve the user interface by adding NFT aggregation, wallet integration, mobile applications, or batch auctions, eliminating MEVs and providing users with more efficient transactions.
After the release of Uniswap V4, the demand to own UNI tokens may increase in the short term. But in the long run, the value of UNI is only related to governance, because Uniswap has not distributed profits from transaction fees to UNI holders due to regulatory considerations. On the contrary, if Uniswap V4 brings new benefits to UNI holders, such as sharing transaction fees or implementing UNI buyback and burning profits, the price of UNI may increase.
Although there is no official confirmation, the above prediction is based on the historical data of the agreement. Let’s wait and see what new features Uniswap will bring to users to stay competitive, innovative, and remain the leading decentralized exchange.
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