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@Uniswap thoughts post @BanklessHQ interview with @haydenzadams . It seems like they are over focusing on the liquidity provider side of the network ....
In early days, #tradfi advisors thought #uniswap wouldn’t work because professional mm would eat it alive. They were wrong.
The v1 and v2 design 1) increased capital by drawing casual market makers who didn’t have to worry about being smarter that the others on the exchange 2) subsidizing takers to draw in volume. What?
They subsidized the user side (takers) by building something with expected impermanent loss - a subsidy from makers to takers. This subsidy helped it grow volumes at the expense of capital efficiency
This was a smart trade off because market makers only want to play in the biggest markets. So subsidizing user growth helped attract market makers even if they were losing some of the gains to IL .
Leveling the playing field by forcing all into one formula meant the addressable market of Market makers was much bigger including teams, seekers of passive income, and tinkerers bc they didn’t have to compete with professionals
Interestingly the network effects from Uniswap come from it being the 1st place to go for illiquid coins & while you there (or as part of same trade) you buy liquid coins. These small coins appear unimportant from rev side (Hayden said 20%) but they are all the network effect
The formula was perfect to drive volume growth, lock-in network effects from new growing users, and attract small capital providers with few alternatives
Basically Uniswap focused on small liquidty providers and users at the expense of big funds who need lots of liquidity and want to employ complicated leveRged market making strategies - these were better served by $zrx , @KyberNetwork or cex .
But with v3, all this will change. Uniswap listened to the naysayers and will focus on big users and liquidty providers at the expense of small players. They will compete with cex based market makers and chase off small liquidty providers.
The subsidy to users through and inefficient curve is gone. The knowledge liquidty will be there on turbulent days like March 2020 is gone. . Now liquidty will disappear when It’s needed. This is something you need to have ten years experience in finance to really get.
These two things make people move to aggregators like @1inchNetwork . With the subsidy gone and no guarantee for liquidity on down days why got to Uniswap you need to use an aggregator.
With a focus on the needs of large pairs with 80% of fees, they neglect innovations that help the long tail, @Uniswap v2 bread and butter and the only place they have network effects and competitive advantage.
As Uniswap tries to compete the with cex, I expect them to lose as more of their big pairs move there. And to aggregators who keep long tail, gas fees, and cross chain - the needs of small investors front and center.
I love @Uniswap but this is a strategic mistep in my view. We’ll see!
