Uniswap, launched in 2018, pioneered the AMM (Automated Market Maker) model of DEX. Anyone could be a market maker by depositing assets into a pool and earning fees based on the amount of trading activity due to Uniswap. Although the DEX market became very competitive due to the entrance of numerous players, Uniswap kept on getting the attention of the market participants because of its continuous innovations and robust security. The platform is the most popular destination for DEX traders nowadays and dominates 50-60% of DEX trading. The v3 of Uniswap was launched in May 2021 with an ambition to become more capital efficient. This third version brought a lot of new features to Uniswap. It introduced fee tiers and liquidity concentrations. In Uniswap v3, you can set a certain price range where you provide liquidity. It decreases impermanent loss tremendously and also makes the protocol more attractive from the composability point of view. AMMs are really excellent for doing permissionless trading but what about the depth of liquidity? A research paper published earlier this year showed that Uniswap v3 had higher market depth across all price levels, i.e., it is more advantageous for users to execute larger trades on Uniswap v3 compared to centralized exchanges. But Uniswap does not offer limit orders or margin trading directly on its platform. TheTrade is a new project that is trying to solve this issue with its innovative solution.
Understanding Range Orders of Uniswap V3
Concentrated liquidity means LPs can provide liquidity to any price range at their wish and liquidity remain imbalanced in ranges. For example - ETH/USDC liquidity on v1 & v2 is always spread across [0, ∞] but in v3, you can provide liquidity in a particular range like [1100, 1800]. Capital efficiency increases drastically due to this. The behaviour of LPs providing liquidity on v3 is called ‘Range Orders’. There can be three scenarios when you provide concentrated liquidity on Uniswap v3 –
1. Current price is within your target price range
2. Current price < your target price range
3. Current price > your target price range
For the first case, you provide liquidity in both tokens of the same value and start earning fees. For the second and third cases, only one of the two tokens is required to provide LP. Yes, it allows single-side deposits only in this case. Here, your position will not earn fees or be used in trades until the market price moves into your range. This is a reason that providing liquidity on Uniswap v3 requires a more active presence to maximise income with respect to the earlier versions of the platform.
TheTrade offers an innovative toolkit for decentralized trading and effective capital usage with Uniswap v3 concentrated liquidity. The team comprises a team of dedicated developers with vast experience in blockchain technology and Web 3. The goal of the project is to expand the potential of the trading functionality while saving the user's time by implementing automated solutions and making the user's work with capital more efficient. The beta version is yet to be launched. There are some bots available in the market that automate limit orders on DEXs but such solutions are not truly decentralized and work with help of external resources. TheTrade wants to offer a maximally decentralized solution where every network user can participate. EXECUTOR is the bot of the project that can be launched by anybody and execute spot limit orders while earning its commission. EXECUTOR charges an execution fee for the automatic execution of trades. The smart contract protects the system from any bad behaviours.
Buy Limit & Take Profit orders of TheTrade
Depositing to a narrow range to Uniswap v3 is quite similar to traditional limit orders. For example – Suppose, the current price of ETH is 1200 USDC and you want to buy ETH at 1000 USDC, you can add USDC to the ETH/USDC pair in the range of 1000 - 1010 ETH/USDC. When ETH price falls below 1000 USDC, your liquidity will fully get converted to ETH. In this instance, you need to withdraw your liquidity manually. Otherwise, it can again be converted back to USDC if ETH/USDC starts trading above 1010. It is really not possible for you to monitor the transfer of liquidity from asset to asset continuously and while withdrawing liquidity, you may face slippage and sandwich attacks. You need the help of a third-party service if you want automated withdrawal in this case. TheTrade offers this service. The platform helps you place a ‘Buy Limit’ order used for the pending purchase of an asset at a given price and a ‘Take Profit’ order used in anticipation of selling an asset at a given price. The smart contract withdraws liquidity back from Uniswap and deposits the desired asset to the user’s wallet after obtaining at the desired price.
Margin Trading of TheTrade
TheTrade will also offer ‘Margin Trading’. In Margin Trading on CEXs, users deposit collateral to the exchange to cover the credit risk and obtain leveraged position beyond their existing capital. In this case, users will take leverage from TheTrade’s own liquidity pool. Leverage will be available for blue-chip crypto assets in the beginning. Initially, TheTrade will offer leverage up to 5X for both long and short positions. Higher leverage options will be added later on. Margin limit order will work similarly to the spot limit order with help of EXECUTOR. Another additional role is played by Liquidator. Any TheTrade user can become Liquidator and receive a commission for helping the protocol.
Uniswap v3 liquidity has opened up a blue ocean for DeFi projects. DeFi and the associated technology must be aligned with the interest of traders and investors for coming to mainstream and Algorithmic DeFi Trading needs mass adoption for that. It is a reality that on CEXs, market-making is dominated by traders that rely upon market-making algorithms as well as execution speed. With the advancement of L2 chains like Optimism and Arbitrum, Uniswap V3 already has all ingredients to be the DEX to rule them all. It just needs to be routed properly. TheTrade can bring a paradigm shift in the DEX meta and how it is perceived in the market in terms of execution speed and trade performance. The exciting part is that users will earn fees for limit order usage on the platform while waiting for the execution of trades as they become liquidity providers to Uniswap v3 when they place limit orders. As the protocol does not use external resources, it is not rent-seeking in nature. TheTrade and Uniswap v3 cash flow remain within its community always. Let’s wait for some more days. The game-changing beta platform of TheTrade is getting launched soon!
The article was first published here.
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