Most charts used in this post come from and are updated in this dashboard: https://dune.com/consideredfinance/uniswap-v3-license-expiry

The story hasn’t begun yet.

The Uniswap v3 license transitioned to a general purpose license 2.0 just over a month before publication of this post. Over this period 9 forks of the protocol have gone live, mostly on chains without a Uniswap v3 presence currently. A little surprisingly there have been no vampire attacks at all on Uniswap, but this could be due to market conditions and still yet to play out.

This post focuses on the metrics to track going forward that could lead and give context to the impact of the change in license. Dashboards have been created for anyone to monitor them in real time as the space evolves.

Quickswap v3 on Polygon provides the best case study of an established DEX using its own concentrated liquidity protocol to defend and win market share from Uniswap on its home chain. Quickswap acquired a concentrated liquidity license from Algebra and began operating in September 2022. We look into the success of Quickswap v3 and how this came to be.

The BNB Chain DEX market also deserves its own focus. Uniswap joins a well established market with the dominant DEX forking Uniswap v3 as a defensive move. We look into how LP’s react to two concentrated liquidity DEX’s.

Uniswap v3 Business License

Uniswap v3 Core contracts were launched by Uniswap Labs under a BUSL 1.1 license expiring into an open source GPL 2.0 license on 1 April 2023. Now anyone can use this proven codebase for their own productive use cases freely.

Why Uniswap v3 is such a Big Deal

Uniswap has dominated the decentralised exchange market since launch in October 2018. Uniswap has consistently held 80%-90% market share of transactions on Ethereum between its different versions.

Volume share is a little more competitive in the 60% — 70% range. This is due to other DEX’s focused on stablecoin pairs which typically trade in larger trade sized trades.

The launch of Uniswap v3 in May 2021 was successful from the start. Simple liquidity migrations from Uniswap v2 and Sushiswap pools bootstrapped liquidity and within 5 weeks from launch Uniswap v3 saw over 40% of DEX trade volume. Some of this came at the expense of the previous version of the protocol as high average size trading pairs migrated to lower slippage concentrated liquidity. Uniswap v3 also catalysed growth in trading volumes across DeFi. Previously impossible use cases emerged.

Competing forks of Uniswap v3 other than Pancakeswap BNB Chain and some Sushiswap instances do not have the luxury of migrating liquidity and have to start from scratch. Uniswap has a similar issue on BNB Chain, but it does have a successful brand to leverage.

It is also worth exploring Uniswap v3 BNB Chain, deployed 15 days before the expiry of the BUSL license. Pancakeswap, the dominant DEX on BNB Chain has over 85% of volume share and has launched its own concentrated liquidity fork. This puts Uniswap into a different position to that of other chains. It enters an ecosystem with a dominant competitor that also now offers its own version of Uniswap v3.

Uniswap v3 Forks

As of 2 May 2023 8 protocols have live Uniswap v3 forks. Most of these are on chains with no Uniswap presence. The only v3 fork to gain meaningful TVL so far has been Pancakeswap v3 on BSC. All others have too little liquidity to meaningfully compete with Uniswap v3 on any pairs.

Trader Metrics Pre and Post BUSL License

To remove any potential bias introduced by high volume new pairs such as PEPE, the analysis that follows only considers pools active before the license expiry unless stated otherwise. The period 90 days prior to the license expiry is used as a comparison to give context.

In short not much has changed. All chain volumes are within normal fluctuations at a high level.

As alluded to in the introduction this post intends to explore all potential impacts of the license expiry and their associated metrics.

Market Share of Different Trader Types

Tracking the market share of different trader types yields quick insight into some potential implications of competing concentrated liquidity protocols.

DEX trades are differentiated by the persona initiating the trade. Three persona’s are identified:

• DEX Aggregator, which measures the competitiveness of the liquidity bonding curve weighted by pair volume.
• Arbitrage or Sandwich bot. Additional concentrated liquidity pools on a chain could potentially create more arbitrage and other MEV opportunities. This impact should show up here.
• Uncategorised, representing our best measure of volumes trading organically through the web application. The share of uncategorised trades also represents a loose measure of the brand value of Uniswap.

Up to 8 May 2023 Uniswap is not showing any shift in any of these categories due to the lack of meaningful competition.

Market Share of Different Token Pair Categories

Uniswap v3 is extremely versatile, and holds significant market share in all pool categories. Where it seems to outperform best is in volatile-stable pools.

Because of the two token pool design of Uniswap there is the possibility of certain pairings shifting to alternative concentrated liquidity DEX’s that choose to focus on them. Tracking the market share of these stable-volatile pairs could provide a separate leading indicator of shifts in market share.

Volatile-volatile pools are another area where together with v2, Uniswap holds a dominant position. The Quickswap v3 strategy (see below) of targeting the long tail first to get initial traction could start to show up in market share here.

The WETH-USDC Pair

Dominance of the WETH-USDC pair is arguably the secret weapon of Uniswap v3. USDC-WETH makes up around 25% of total volumes, but is more important than solely its extra volume on a DEX. We track market share of this pair as a potential leading indicator of a shift in market share dynamics more broadly.

This pair provides a natural bridge between stablecoins paired with each other and volatile pairs. Volatile tokens are typically paired with WETH to minimise impermanent loss. Dominance in this bridge pair can allow increased volumes in a wide range of long tail pairs without needing to leave Uniswap.

Uniswap on BNB Chain

Migrating to a large, established chain with a dominant DEX covering the long tail of assets is not something Uniswap has done before. Up to now its deployments have been early onto emerging ecosystems, aligned with its home base of Ethereum users.

The Uniswap brand does not carry over nearly as well to BNB Chain either. Uniswap will need to bootstrap itself without a differentiated bonding curve or traders used to trading on its front end. Up to now Pancakev3 has take the lions share on concentrated liquidity.

The license expiry could potentially help Uniswap bootstrap liquidity on BNB. Liquidity providers could learn to LP concentrated liquidity on Pancakeswap and then also ply their trades on Uniswap, making Pancakeswap v3 an acquisition channel for LP’s.

Up to now this has been the case as 68% of liquidity deployed to Uniswap v3 BNB comes from addresses also LP’ing on Pancakeswap v3.

Quickswap v3 Concentrated Liquidity

Quickswap acquired a license for its own version of concentrated liquidity and launched on Polygon POS on 12 September 2022. Quickswap v2 had a significant presence on the chain, but was far from the dominance of Uniswap v3 at this stage. Liquidity incentives and a community focused on Polygon allowed Quickswap v3 to continue gaining market share at the expense of all other DEX’s including Uniswap. This was also the point where Uniswap stopped gaining market share.

Studying how this happened provides a potential playbook for a v3 fork to win market share from Uniswap on a major chain.

The chart uses data from Flipside Crypto due to some Polygon data issues with Quickswap v2.

First looking into Quickswap v3 liquidity we see that is does not appear to come at the expense of Uniswap liquidity but rather Quickswap v2 liquidity migrated.

Given this it makes sense that Quickswap v3 gained market share in long tail pairs quicker than top 20 pairs. Top 20 pairs grew in volume share much more gradually, but have continued their growth.

This provides a potential vampire attack playbook for concentrated liquidity forks. Start by aggressively incentivising long tail pairs and use traction there to build natural flows into high volume pairs that trade as crosses a lot of the time.

The second phase of progressively building share of high volume pairs is crucial, as mentioned in the USDC-WETH section above. This has been a missing piece for Sushiswap for example.

Summary

The impact of open sourcing the Uniswap v3 core contracts has not even begun to show up. This post discusses a range of nuanced implications

The major metrics tracked are:

• Volume share by trader type to monitor pricing competitiveness, MEV opportunities created and direct volume
• TVL Share across DEX’s generally.

The implications of Uniswap facing a direct concentrated liquidity rival this early on BNB chain creates a serious hurdle for Uniswap adoption there. There likely will need to be further Uniswap innovation to create the outcomes that will convince LP’s and traders to switch.

The success of Quickswap on Polygon POS chain showed how incentives targeting long tail pairs can translate into steadily growing high volume pairs TVL and volumes. This is a strategy Uniswap should be prepared for.

Staying Up to Date

The dashboard tracking all these metrics can be found at: https://dune.com/consideredfinance/uniswap-v3-license-expiry