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But can v3 really help alleviate the Ethereum gas crisis?

Posted on 25. März 2021 in Bitcoin

 

Uniswap update! can v3 help alleviate the Ethereum gas crisis?

The long-awaited official announcement for the launch of Uniswap version 3 is finally here. However, it has dashed hopes of big improvements in transaction costs and speeds.

Following a teaser on 23 March, the team behind the world’s most popular decentralised exchange, Uniswap, has finally released details of the version 3 specifications.

The mainnet is scheduled to launch on 5 May. Layer 2 scaling through Optimism rollups will follow.

Uniswap is currently the crypto industry’s top gas guzzler. The Bitcoin Pro exchange has generated $2 million in fees in the last 30 days.

The new iteration will hopefully alleviate these issues, although it may not solve them directly.

Uniswap v3 under the bonnet

The recently revealed specifications state that there will be some improvements in gas prices. However, gas costs will not be fully reduced until Layer 2 scaling is introduced at a later date. So, in short, don’t expect a break from painful transaction costs.

However, V3 introduces something called „concentrated liquidity“. This gives individual liquidity providers „granular control“ over the price spreads for their allocated capital.

Positions are pooled together to form a combined curve that users can trade against.

„LPs can allocate liquidity with up to 4000 times the capital efficiency of Uniswap v2, generating higher returns on their capital.“

There are to be multiple flexible fee tiers to compensate for risk when providing liquidity. In addition, with the introduction of improved oracles in v2, the time-weighted average price (TWAP) system has been further developed.

However, there will not be the huge gas savings that many had hoped for:

„Even with these breakthrough design improvements, the gas cost for v3 swaps on the Ethereum mainnet is only slightly cheaper than in v2. Transactions conducted on the Optimism deployment are likely to be significantly cheaper!“

Little hope from EIP-1559

According to a 22 March report by Coin Metrics, the problem is that the blocks on Ethereum (go to Buy Ethereum Guide) are over 95% full. The report adds that blocks were 97-98% full in March 2021.

This means miners are prioritising higher gas transactions as each block can only carry a limited amount.

The analytics provider added that EIP-1559, which is due to be introduced in July, is unlikely to solve this problem. This is because it is designed to adjust the current auction mechanism and will make fees more predictable.

Only true scaling will help reduce the gas crisis. For now, grid users will have to wait for the full roll-out.