Understanding Functionalities of Uniswap V3 from the Perspective of Liquidity Providers
Multiple Protocol seeks an in-depth insight into utilizing AMM Liquidity Strategies for Uniswap V3 using the platform.
It is well-established that earning returns from investing liquidity in the traditional market is the core functionality of leading exchanges and professional market makers. Until the emergence of Uniswap, it was simply difficult for normal investors to earn market income.
Uniswap has generated the mechanism of using smart contracts for enabling Automated Market Makers (AMM) to trade with users on a decentralized transaction protocol. This allows users to have complete control of their own assets. Moreover, the market-making assets locked in the smart contracts are also open for public viewing, ensuring a secure and transparent transaction method.
With Uniswap V1, Uniswap announced the official launch and deployment on the Ethereum MainNet but the version can only be regarded as a proof of concept for a new decentralized transaction method. Its usability was not appealing enough to general users at this stage.
The second version of Uniswap was a comprehensive technical upgrade to the V1 with added functions like free combination trading pairs, price oracles, flash loans, optimized trading paths, and more.
The launch of V3 brought about centralized liquidity, multiple fee levels, advanced price oracles, liquidity oracles, and other technical upgrades to Uniswap. The key feature of this upgrade was to improve the efficiency of fund usage.
Here’s a glimpse of the functionalities of Uniswap V3 from the perspective of liquidity providers:
1. Allows Maximized and Improved Efficient Use of Funds
2. Active Liquidity Management
3. Flexible fee setting
4. Cost of Liquidity Supply
5. Impermanent loss
6. Hedging Plan
7. Fund safety
The emergence of Uniswap V3 has brought about a new era for liquidity providers. The efficiency of the use of funds has significantly improved and liquidity providers can now deposit liquidity into a farm through active liquidity management which guarantees returns from investment. The risk-reward ratio of investment also depends on the cost control, risk management, and prediction capabilities of active liquidity managers.
Providing liquidity strategies, Multiple Protocol will fully hedge against impermanent losses on decentralized exchanges on centralized exchanges. Impermanent loss refers to the loss faced by funds in the liquidity pool. This loss usually occurs when the proportion of tokens in the liquidity pool becomes unbalanced.
Multiple will also provide its users with a Uniswap grid trading strategy. Grid trading is a strategy that uses market fluctuations to make profits. In the process of constant fluctuations in the underlying price, one can draw a grid on the underlying price and make the most profitable by adding and reducing positions when the market price touches a certain grid line.
About Multiple Finance
Multiple Protocol is a Decentralized Finance (DeFi) protocol based on Ethereum that allows expert traders (GP) to provide professional AMM liquidity strategies, which in turn ensures users (LP) securely benefit from the best yielding products.