Uniswap's goal has always been to provide the best trading experience. As the encryption market develops and products take the lead, the Uniswap team is constantly thinking about what the so-called "DEX user experience" is? The team summarized the two most critical factors—liquidity and transaction price—and took action.
What is the user experience of the exchange?
In addition to being number one in the market, Uniswap aims to be the best exchange. This requires providing a good user experience. The team believes that the user experience of decentralized exchanges consists of two major elements:
Liquidity: The higher the efficiency of liquidity utilization, the better
Transaction price: find the best transaction path possible
The two factors will affect each other. The best price is easy to measure, but it requires sufficient liquidity at the same time. Only in this way can users find the best transaction path, and only then can users have the best user experience.
Liquidity is best when tokens, fund pools, and transaction fee levels all have flexible and secure settings and services, which will attract more liquidity providers. Each subsequent version of Uniswap gradually provides more complex features to improve the efficiency of liquidity use.
But on the other hand, although liquidity efficiency is constantly optimized, the increasingly complex customizability of the liquidity pool makes it increasingly difficult for traders to find the best price trading path. For example, when there are trading models with different mechanisms, different fee levels, different oracles, different forms of pending orders and even different blockchains in the market, the more and more choices there are for traders, the more complex they become, and it becomes more and more difficult. Find the best deals.
As markets evolve, optimal trading paths and liquidity have become two separate but related issues. For a seemingly unsolvable situation, Uniswap Labs tried to solve the two issues separately:
Uniswap v4: Provides the best liquidity. Allow users to create hooks for custom AMM functions, such as setting custom fees or new transaction models.
UniswapX: Provides the best trading path. Outsource the complexity of routing to the open Filler network and let Fillers compete to deliver the best prices from diverse liquidity sources.
The two protocols complement each other and work together to help provide users with the best trading experience.
Uniswap v4: Best Liquidity
Uniswap v1 was originally just an experiment to test whether the asymmetric trading model AMM was feasible. Later, the success of long-tail token markets such as MKR and DAI proved its value. It defeated dYdX, the leader of decentralized exchanges at the time, and became the first in the market. But what about again?
In order to provide a better trading experience, Uniswap always aims to provide better liquidity, constructing ERC-20 token pairs in the v2 version to increase the operational efficiency of token transactions; introducing an aggregation trading model in v3 to innovative Ways to increase liquidity usage efficiency.
(Extended reading: Uniswap releases six updates: v3 custom price range UI has been greatly improved, and governance proposals are more user-friendly)
The latest Uniswap v4 update direction recently changed the way the liquidity pool operates through smart contracts similar to plug-ins - hooks, greatly increasing the variability and flexibility of the liquidity pool, allowing users to customize the liquidity pool. Operating rules, not limited to official designs. For example, when creating a liquidity pool, users can customize the liquidity pool’s transaction fees, withdrawal fees and even trading models.
Through hooks, in addition to the aggregation transaction model of v3, the Uniswap v4 transaction model also has various possible new mechanisms such as time-weighted average transaction model (TWAMM), chain price limit order transaction model, etc., allowing developers with ideas to construct It is possible to build on the liquidity and security of the Uniswap protocol rather than create a new protocol.
(Extended reading: What is Uniswap v4? Expect to build TWAMM, dynamic fees and more)
All the above efforts will successfully allow Uniswap to provide better liquidity, but it will make it more challenging to "provide traders with the best trading path".
UniswapX: Best Price
Finding the best path depends on the liquidity coverage at hand. The more liquidity there is, the more options you have to find the best route, and naturally you can have better trading prices. This is why DEX aggregators and meta aggregators are popular precisely because of their broad liquidity coverage.
However, the scope of the liquidity pool that needs to be controlled continues to expand as the market develops, and the types of tokens, the number of blockchains, and the number of transaction models have become more diverse and complex. It is ultimately unsustainable for the team to manually maintain a single routing engine. Aggregators encounter growth bottlenecks due to the need to continuously maintain the composability of different liquidity pools. After using Uniswap v4, maintenance will become more difficult. For example, the hooks used by each liquidity pool require the team to find, audit and ultimately use them in series one by one.
Uniswap's solution to this problem is to market "liquidity discovery" and leave it to the market to compete and provide answers, rather than being maintained by a single team. Instead of accepting bids from a single source, the auction system allows fillers in the market to compete.
UniswapX is a protocol focused on transaction routing issues. It outsources the "problem of finding the best transaction path" to a competitive market that understands the liquidity and resource distribution on various chains to find the best transaction price for traders.
This market is very competitive. Fillers are encouraged to use whatever tactics are available to make lower offers. One can give MEV back to exchangers, find unknown sources of liquidity, tap into private or even own liquidity—anything that gives them an advantage in winning auctions.
Extended reading: The aggregation platform UniswapX is launched! Trading aggregator 1inch protects DEX CowSwap crisis with MEV?
UniswapX transforms routing from a one-to-one problem to a one-to-many problem. The protocol regulates market participants and sets ground rules for fillers to compete with each other to successfully return value to traders and get the best deals. Routes and prices.
in conclusion
Uniswap v4 and UniswapX are parallel and complementary protocols. Each focuses on specific issues but complements each other:
Uniswap v4 optimizes the customizability of liquidity pools to increase liquidity efficiency
UniswapX optimizes transaction paths to optimize transaction prices
The combination of the two provides traders with the best user experience while maintaining the commitment to decentralization, censorship resistance and permissionlessness, increasing the imagination of the future of decentralized exchanges.
This article How to optimize the user experience of exchanges? What does Uniswap bring to the table? First appeared in Chain News ABMedia.