Understanding Uniswap V3, which Multiple Finance is built on
What is Uniswap V3 built for?
Uniswap V3 is designed to work on L2. While a bit of liquidity is expected at the start, it will become much cheaper to actively trade and manage your LP positions on L2. The capital efficiency in Uniswap V3 will increase in multiple folds because of the concentration of liquidity in narrow price ranges. And V3 will also become more efficient in terms of gas consumption, provided the trades do not go beyond one tick.
The new mechanics of providing liquidity will make the market deeper, but private LPS will be in a difficult position.
Assuming you are a lazy liquidity provider, and you evenly distribute your money into each tick in the range of $ 1000 — $ 3000. But almost all of the trading activities happen in only a few of them. These active ticks will be overflowing with the capital of professionals, because they earn the most commissions.
Pros will juggle their LP positions hunting for the price ranges with the highest trading volume. This smears the capital of the private owners, reducing their share of profit from commissions.
In V2, everyone received rewards based on their share of the pool’s capital. In V3, delivering liquidity becomes a competitive sport, and this is more beneficial to people who understand what they are doing.
Over time, there might be aggregators of LP strategies like Yearn, which will combine the capital of private investors in a pool and distribute rebalancing costs among all the investors in the pool.
Since each LP position will become unique, LP tokens can no longer be represented as ERC-20 tokens. They will subsequently become NFTs. Therefore, LP tokens will not be the ideal collateral for loans in Maker or Aave.
It also breaks the usual approach to mining liquidity, because now you now can add liquidity to the levels where the price cannot not reach. There is no benefit from such “liquidity” and it should not be rewarded.
Fortunately, this problem is not difficult to solve. Instead of making a direct deposit to the pool, participants in the liquidity mining program will have to deposit money through a general contract. The general contract has a predefined price range (for example, $ 80 — $ 120), and can shift in one direction or another if necessary. This means the LP 100% capital will be beneficial.
In conclusion we want to say, that even in V3 you can configure the commission amount separately for each trading pair (this is how Uniswap encroaches on Curve), as well as distribute liquidity between V2, V3 and L2.
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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.