Difference Between Uniswap V2 and V3

Updated on 13 September, 2022 3:50 PM
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    Uniswap is a popular decentralized cryptocurrency exchange that orates on the Ethereum network. These platforms use a traditional system to support trading and require users to deposit funds under their control. Moreover, they are governed by a single authority.

    Since its launch, it has gone through several updates notably its versions V1, V2, and V3 which is the latest upgrade. In this article, we are going to look at a few notable differences between them and what they bring to the digital space individually.

    Uniswap V3 Launch Date

    The expansion of decentralized finance on Ethereum was sparked by the launch of Uniswap V2 on May 5, 2020. The launch was a huge success, which prepared Uniswap to take the lead position in the decentralized exchange market for the coming years.

    On May 5th, 2021, the highly anticipated release of Uniswap V3 took place. The developers had also disclosed that, in order to reduce Ethereum's exorbitant costs, they would eventually start an L2 installation on Optimism.

    Uniswap V3 Key Features

    Uniswap V2’s primary function allowed users to build up trading pools between any ERC20 token, along with a wide range of assets that were not yet available on any other exchange.

    Uniswap V3 introduced the new feature of concentrated liquidity which represented a significant advance since it gave liquidity providers control over the price range wherein their assets were transacted.

    The developers had also disclosed that, in order to reduce Ethereum's exorbitant costs, they would eventually start an L2 installation on Optimism.

    The addition of various charge methods of evaluating across trading pairs (0.05%, 0.30%, and 1.00%) was another extremely innovative feature in V3.

    Uniswap V2 vs V3: Concentrated Liquidity

    V2 has a specific price range for every liquidity pool in which swapping takes place. The majority of the volume and the bulk of the fees should come from that pricing bracket, according to LPs. This happens because traders refuse to move out of the price range.

    Meanwhile, LPs don't just distribute their assets evenly throughout the price curve in Uniswap V3's liquidity pools. Alternatively, they get to pick the price range to which they want to assign their assets and get paid when the price falls within that range. This is made possible because of the feature of concentrated liquidity introduced by V3.


    Capital Efficiency for both Uniswap V2 and V3

    Even though the assets of users would be distributed equally all along the price curve in the scenario of Uniswap V2, there is very little likelihood that the cost would exceed the price range. Therefore, just a very small portion of the entire amount of cash is working for traders to earn fees.

    Whereas in the case of Uniswap V3, users transfer all of their assets in the specific price bracket. In this method, the entire value of the assets users deposited(not just a portion of them) is producing profits for them.

    Uniswap V2 vs V3: Non-Fungible Liquidity

    In Uniswap v3, LPs' liquidity positions are no longer fungible because they can now offer liquidity in certain price ranges. As a consequence of this, LP holdings in Uniswap v3 cannot be represented in the fundamental protocol as ERC20 tokens, whereas they can be in Uniswap V2.

    Gas fees Cost and Optimism

    The Uniswap team asserts that the gas prices on the Ethereum blockchain system will be marginally lower with the introduction of V3 than what it was during  V2, despite the fact that they made some important enhancements to Uniswap in v3.

    In addition to the Ethereum mainnet, the Uniswap developers had also announced they would soon launch Uniswap v3 on Optimism. This was extremely important given that one of the key issues with Uniswap V2 and Ethereum since its launch has been high gas fees.



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