July 30, 2023
Uniswap V4 Could Launch Sooner Than Expected
Dear Subscriber,
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| By Chris Coney |
In the DeFi world, I believe that becoming a liquidity provider on a decentralized exchange is the single most lucrative income opportunity that currently exists.
After all, annual yields typically range anywhere from 25% all the way up to 80% before the risk profile significantly increases.
And this is an opportunity that’s available to retail investors like you, largely thanks to one of my personal favorite DeFi projects, Uniswap (UNI, “B”).
A few weeks ago, I wrote about the announcement of Uniswap V4 and listed some of the innovative features we can expect from this upgrade.
While this is undoubtedly exciting news, we were left with no clues about the timeline. Thankfully, now we have an idea.
It looks like we will be able to get our hands on Uniswap V4 before the end of the year … if not sooner.
Now, the main reason why we can’t access it sooner is because it’s built on technology that isn’t available yet.
A Trip to Cancun
Typically, each hard fork upgrade to the Ethereum (ETH, “B+”) network — which is a software update that’s incompatible with the existing blockchain protocol — is given a codename.
And these codenames are usually inspired by cities where Ethereum hosts its Devcon international developer’s conference.
So, the last one was named the Shanghai (or Shapella) upgrade, and the next one is called Cancun.
Within the upcoming Cancun upgrade is something called EIP-1153 — one of the pieces of technology that Uniswap V4 is designed to make use of.
At the end of the day, blockchains are essentially databases. Except they record the precise order of transactions they process, and they tend to store all the data — and all previous versions of the data — forever.
So, this means only the most essential data is stored on the blockchain, which is why we pay transaction fees. Basically, we’re bidding for our transaction to be included in the next block of storage.
Now, the Cancun upgrade to Ethereum — and more specifically EIP-1153 — will introduce a mechanism known as transient storage: the ability to store more data for a short period of time.
With this additional feature, DeFi apps will be permitted to do things they can’t currently do.
Namely, it will give these apps the ability to store more data to be used in transactions … without bloating the blockchain with data that’s no longer needed.
Although I often applaud Uniswap Labs for its ingenuity, in this case, I believe it is ahead of the cutting edge.
Even though the Ethereum network hasn’t rolled out this upgrade yet, Uniswap V4 is already prepared to make use of this new technology.
More Complex, But More Profitable
Considering what Uniswap V4 will be able to accomplish thanks to these innovations, it could make being an LP even more profitable than it already is.
At least for those in the know.
You see, when Uniswap was first launched, there wasn’t much scope for creativity within the system. So, everyone was pretty much on a level playing field.
Back then, everyone just put their capital in the same pool, split 50/50 between two assets.
Then, all fees earned were distributed to LPs based on what percentage of the pool they had contributed.
Nowadays, the current version, Uniswap V3, has a concentrated liquidity model. Basically, this allows LPs to provide liquidity at specific price ranges, which helps with increasing capital efficiency and earning higher returns.
This has definitely increased the complexity of being an LP.
It’s at a point now where the difference in profitability between a casual investor and an investor with a concentrated liquidity strategy are worlds apart.
And Uniswap V4 is going to widen this gap even more.
Since Uniswap V4 will have a modular design, the number of possible configurations for an investor’s liquidity position is going to increase.
That means strategic investors are likely going to see their income investments become even more lucrative, while casual investors may find their yields suffering.
After all, the more variables that are introduced into a system, the bigger the difference the “recipe” makes.
Take eating out for example ...
I’m sure you’ve eaten the same dish at two different restaurants and experienced just how dramatically different the same dish can be. The same concept applies here.
The Timeline
As of right now, the Cancun upgrade is set to be completed by the end of September.
Once that upgrade is live, then Uniswap can make its final move to have its code comprehensively audited to ensure it functions exactly as designed on the newly upgraded Ethereum infrastructure.
How long will this audit take? Well, it depends on the final state of the code that’s submitted.
But the audit should be completed in time for Uniswap V4 to launch during 2023.
In the meantime, if you would like to explore a proven strategy to become one of the most profitable LPs, consider checking out my Crypto Yield Hunter newsletter.
But that’s all I’ve got for you today. Let me know if you’re as excited for Uniswap V4 as I am by tweeting @WeissCrypto.
I’ll catch you here next week with another update.
But until then, it’s me, Chris Coney, saying bye for now.
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