Uniswap V2 launches with increased security, but remains expensive
The second iteration of the decentralised Ethereum Uniswap V2 exchange was launched on 18th May after an announcement on 23rd March that it would be launched in the second quarter of 2020.
A blog post written by the Uniswap team details the steps taken to transition to the new platform.
Uniswap V1 will continue to exist, as it cannot be shut down like the old version of MakerDAO, for example. However, the team has established an interface to migrate the liquidity from V1 to V2.
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The platform is based on users committing capital to liquidity funds, whose size defines the amount of deviation during operations. Thus, larger groups can accommodate larger amounts of trades.
The Uniswap interface was updated for V2, and allows users to choose which version of the platform they wish to use. The interface also lets the user know which platform provides the best liquidity and price. For example, V1 is a better alternative for Ethereum trading to Dai, as Cointelegraph discovered. The opposite is expected to happen as liquidity providers migrate to the new platform.
The team has also released an updated statistics platform to view The News Spy, Immediate Edge, Bitcoin Era, Bitcoin Code, Bitcoin Billionaire, Bitcoin Revolution, Bitcoin Profit, Bitcoin Circuit, Bitcoin Trader, Bitcoin Evolution and volume in real time.
Improved security and flash trading
As Cointelegraph reported earlier, the new platform has three key improvements in terms of usability and security. It now allows direct token exchanges, which are particularly useful in stablecoin-to-stablecoin operations, such as USD Coin (USDC) to Dai (DAI). While this was possible before, they used the Ether (ETH) as an intermediate step, which meant additional fees and slippage.
Uniswap V2 aims to be a better price oracle for other decentralized finance (DeFi) projects, as the previous design was abused in instances such as bZx hacking.
It has also introduced a feature called flash swaps, which is similar to the flash loan provided by platforms such as dYdX. Users can borrow unlimited money from a liquidity fund, but must return it within the same block, or the transaction will be invalidated.
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The flash loan is primarily useful for price arbitrage between different DeFi platforms, although the Uniswap design can also be used to quickly introduce leverage positions on platforms such as Maker or Compound.
The price of decentralization
Unlike other decentralized exchanges, Uniswap’s liquidity pool model does not require finding counterparties for a trade, which can allow for a higher volume of transactions compared to order book-based exchanges. However, using Uniswap can be costly.
The liquidity provider’s current fee is the equivalent of USD 1.27 for a trade of 1 ETH at 211 DAI, which is approximately 0.6%.
In addition, the platform suffers from a significant supply-demand differential. At the close of this edition, the purchase of ETH requires an estimated 213.3 DAI, while the sale only generates 211 DAI, a loss greater than the trading rate. The purchase and immediate sale of 1 ETH would therefore have a loss of more than 1%.