An In-Depth Explanation of Uniswap’s Newly Launched Cross-AMM Protocol, UniswapX
An explanation of UniswapX, the newly launched cross-AMM protocol by Uniswap.
Since the launch of the first version of the Uniswap protocol in 2018, on-chain transactions have grown explosively. Uniswap now supports millions of users, hundreds of use cases, and $1.5 trillion in trading volume.
In order to develop on-chain transactions and improve self-custody swaps, Uniswap announced the launch of a new permissionless, open-source (GPL), Dutch auction-based protocol called UniswapX for trading across AMMs and other liquidity sources.
Currently, the test version of this protocol is available on the Uniswap Labs interface, applicable to the Ethereum mainnet, and will be expanded to other chains and Uniswap wallets in the future.
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UniswapX will gradually achieve:
Aggregating liquidity sources to improve exchange value
Providing gasless transactions (swap)
No cost for failed transactions
Expanding to support cross-chain gasless transactions within a few months
UniswapX: The Next-Level Aggregator
Onchain routing is an increasingly important and complex issue. The innovation of on-chain transactions has led to explosive growth in liquidity pools. New fee tiers, new L2 solutions, and more on-chain protocols will disperse liquidity. Uniswap plans to build thousands of custom pool designs on Uniswap v4, making routing more challenging. However, as liquidity sources grow, providing competitive prices requires manual integration and a significant amount of ongoing maintenance and work.
UniswapX aims to solve this problem by outsourcing the routing complexity to an open network of third-party builders who compete using on-chain liquidity, such as AMM pools or their own inventory, to complete exchanges.
With UniswapX, traders will be able to use the Uniswap interface without worrying about whether they are getting the best price, and the transactions will always be recorded and settled on-chain transparently. All orders are supported by Uniswap’s smart order routing, which forces builders to compete with Uniswap v1, v2, v3, and eventually v4 once it is launched.
How to Use UniswapX?
Gasless Swaps – No cost for failed transactions
With UniswapX, traders sign a unique off-chain order, which is then submitted on-chain by the builder who pays the gas on behalf of the trader. Because traders do not need to pay gas, they do not need the native network token (such as ETH, MATIC) to trade or pay any fees for failed transactions. Builders factor the gas fees into the swap price but can compete for the best price by batching multiple orders to reduce transaction costs.
In certain cases, users still need to pay gas, such as the initial token approval for Permit 2. Additionally, native network tokens need to be wrapped when sold, which incurs gas fees.
MEV is one of the biggest problems faced by on-chain exchanges, leading to higher transaction costs.
With UniswapX, MEV that could be captured through arbitrage trading is returned to the traders by increasing the price. UniswapX also helps users avoid more explicit forms of MEV extraction: orders executed by the builder inventory cannot be sandwiched and builders are incentivized to use private transaction relays when routing orders to on-chain liquidity venues.
UniswapX’s cross-chain version is expected to be launched later this year, combining exchange and bridging into a seamless operation. With cross-chain UniswapX, traders will be able to swap between chains within seconds. Traders can also choose which assets to receive on the target chain, rather than being specific to the bridged tokens.
UniswapX is an immutable smart contract that requires no permission. No one, including Uniswap Labs, can modify or pause the contract. The earliest builders are on standby to ensure the proper auction starting price and fast order execution, and the builder network is expected to expand rapidly with user adoption. Currently, ABDK has extensively tested and audited the UniswapX code, and Uniswap offers bug bounties. Traders always maintain self-custody of their funds. Assets are only transferred from their accounts after order execution and receipt of trading profits.
Similar to the Uniswap protocol, UniswapX includes a protocol fee switch that can only be activated by Uniswap governance (Uniswap Labs does not participate in this process).