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Why does CRV beat Uni? Why is Uni v3 a step in the wrong direction?

JamesX

2023-01-10 15:53

Read this article in 13 Minutes

What these blue chip DeFi projects should do next.

Original title: Why does CRV Trump Uni and Why is Uni v3 the Wrong Direction?

DeFi_Cheetah

JamesX, SevenUp DAO

1. Pricing ability

First, Uniswap gave up pricing power after the launch of Uni v3. What does that mean? For any asset traded between several trading platforms, only one can have pricing power.

To use an analogy: a stock's American Depositary receipt (illiquid) VS the stock on its largest trading platform (liquid) affirms that the market's pricing power is in the hands of the latter

In cryptocurrencies, a Token can be listed on multiple trading platforms, CEX or DEX. Why did Uniswap give up pricing power with v3? This is related to the way LPs provides liquidity in v3 - LPs selects a specific price range for providing liquidity funds. This is called concentrated liquidity

Why is it concentrated?

In Uni v2, liquidity is evenly dispersed along the xy=k constant curve, but since most trading activity occurs within a certain price segment, liquid funds in the rest of the xy=k curve are not utilized, i.e. capital is inefficient. v3 is designed to solve this problem

v3 比 v2 更具资本效率，但它需要 LPs 积极管理他们的头寸，因为交易对的价格范围时常变化（挂钩资产除外）。这使新项目不敢在 v3 中设立其原生 Token 的新流动性池。

Why?

由于新 Token 的价格范围由于初始流动性较浅而波动很大，因此在 V3 中拥有资金池的新项目需要经常调整价格范围。这带来了巨大的流动性管理成本，是项目方无法承受的。因此，大多数新的 Token 没有在 v3 上市

由于 V3 上的新 Token 非常少，它失去了定价权。怎么会这样？为了寻找蓝筹 Token （如 $ETH）的价格，人们参考 Binance。对于没有上市的 Token ，由于在 v3 推出之前，有很多新的 Token 在 v2 上上市，人们经常参考 v2 的价格信息

由于管理流动性的巨大成本，v3 上的资金池大多是蓝筹 Token ，流动性强，不太可能出现剧烈波动，而 Uniswap 作为价格信息主要来源的地位也随之瓦解。

So what?

The LP in DEX without pricing power will suffer a lot of huge losses because of arbitrage, and the uninformed order flow is much less than the trading platform with pricing power. Arbitrage is a major source of toxic Flow, which hurts LP very much

Why does LP suffer more in DEX, which has no pricing power?

A: Less unwitting order flow (people mainly trade on tier-1 trading platforms) + more harmful order flow (arbitrageurs take cues from primary sources of price information and leverage LP in the price discovery process of other AMMs)

Just as nbsp; As pointed out by @thiccythot_, @0x94305, @0xShitTrader, v3's LP suffered sustained losses due to huge harmful order flow -~43% of v3's trading volume came from MEV bots!

It makes users reluctant to become v3 LPs! This has affected v3's profitability.

It is difficult for a trading platform without pricing power to take a leading position in the industry, which also affects profitability. In contrast, when one checks whether a stablecoin has depreciated, he will refer to Curve instead of CEX! By comparison, the importance of pricing power is self-evident

2. Profitability

While Curve takes 50% of the fees from LPs, Uniswap pays LP 100%; It gets no revenue from all the transactions. A business without profits is never a good business, no matter how large the revenue looks. Uniswap recognized this and proposed a Fee Switch from LPs

But it's not that easy. Uniswap could be in big trouble for doing so. Without pricing power, LP would suffer more harmful order flow as stated, reducing the incentive to provide liquidity. If Uniswap now takes a fee, it will further discourage LP.

What are the consequences of this?

Most trading volumes in Uni v3 are not "sticky" because. 70% of transactions are driven by algorithms/bots. Volume is just to follow pricing.

Therefore, the enthusiasm of LP decreases -- TVL and liquidity decrease -- slip point increases, execution price decreases -- turnover decreases -- LP cost decreases, and LP enthusiasm decreases the death spiral

How about raising LP transaction fees to maintain TVL and liquidity?

The death spiral is just as inevitable. LP motivation reduction - increased LPs transaction fees - worse strike price - Lower volume - lower LP fees and LP motivation reduction Is that why Uniswap officially never pushed the fee switch

Many web2 technology companies are not profitable in the very short term, but they are actually building a "moat" and increasing customer engagement. Uniswap has no profit, and it can't build engagement because it only has. 15% of the transaction volume is from its front-end application

Why is Curve better than Uniswap?

Can you imagine what would happen if Uni v3 TVL and Trading volume only gave LP 50% of their fees, as Curve did? But Curve channeled liquidity through ve-model and endowed $CRV with real economic utility

In contrast, UNI has no real economic utility and is unrelated to Uniswap's business. If Uni v3 can charge 50% from LPs and still maintain TVL and transaction volume, Uniswap beats Curve. But it's not, because most of its trading volume isn't "sticky" or "organic.

Uniswap has no excuse - "over time, more users will become accustomed to our platform, resulting in more fees and more liquidity". Uniswap's transaction volume is not loyal, and unless it can significantly increase transaction volume from its front end, transaction volume will only leave with the launch of the fee conversion

此外，Uniswap TVL 是有杠杆的：在 34 亿美元中，~4.35 亿美元来自 DAI/USDC 交易对，MakerDAO 将其杠杆率提高到了 50 倍，因为它接受 Uni DAI/USDCLP Token 作为抵押品来铸造 DAI! 然后 DAI 可以重新存入那里，以获得 LP Token 来铸造更多的 DAI!

3. Conclusion: The reasons why Curve wins Uniswap are:

(1) It has pricing power and becomes the main price information source of linked assets;

(2) It takes 50% of LP transaction fees, but can still attract huge TVLS through its special ve-tokenomics, without the need for leverage

Finally, why is Uni v3 a step in the wrong direction?

It increases the project's cost of managing the liquidity in the chain, thus giving up pricing power. It does not improve the capital efficiency of the Uni v2 binding curve by introducing several curves to cater to different cryptocurrency assets, but just. Creating a new model that I think is a worse version of the order book. It is now distracted from the industry's basic use case to one of its competitors in the consumer space: aggregators

如果它能专注于使其成为发行所有波动 Token 的不可跳过的一个选项，那么它就会像电力和水一样–用户在交易 Token 时无法避免 Uniswap。这就是 Uniswap 应该采取的最佳路径，显然它选择了一条不同的道路

4. Kol's point of view supplement

charliemktplace:

I don't think that's why the Curve may or may not be better. The Gas of the Curve is higher, it mathematically does its own form of concentrated liquidity for LP, which risks loss, and CRV war may be a broken window fallacy.

@Slappjakke:

Very interesting point. I never thought about the idea of giving up pricing power. I still think uni v3 is very powerful for the right use and for users with the right understanding, but not as the "king of all things".

@korpi87:

Your entire argument is based on the assumption (false?) that : Uniswap v3 has no pricing power due to concentrated liquidity. But v3 allows users to provide liquidity across the entire spectrum. If there is no Uniswap v2, V3 will be used for long-tail assets, I think.

@PerfectHatred1:

Curve is not profitable (if you include $CRV liquidity incentive release), in Uniswap V3 you can set the full range of locations just like in V2. Want to see what's in store for Curve's future? Just look at Sushiswap. The only thing that keeps the Curve from falling as fast as Sushiswap is that the CRV is locked in for four years.

Hopefully this long tweet will lead to some productive discussion about what should be done next for these blue-chip DeFi projects.