On July 17, Uniswap revealed UniswapX, a new protocol designed to enhance decentralized finance (DeFi) trading by eliminating common issues. The protocol focuses on aggregating liquidity sources, ensuring better pricing for users, and introducing gas-free transactions.
Uniswap, which made its debut back in 2018, is the largest decentralized exchange (DEX) in the market. Initially limited to Ethereum, it has now expanded to six more networks: Polygon, Celo, BNB Chain, Avalanche, Arbitrum, and Optimism. As of today, Uniswap’s total TVL is almost $3,8 billion.
Gas-free transactions and better pricing
UniswapX ensures users get optimal prices by pooling liquidity from different sources. Moreover, it promises to make transactions gas-free, meaning users no longer need to hold the native network token (e.g., ETH) to engage in trading.
This new protocol utilizes third-party entities called "fillers" to compete and fill users' swap requests using on-chain liquidity from decentralized exchange pools or their own private inventory. Such a competitive environment promotes better pricing and a more streamlined trading experience.
UniswapX also relieves users from any financial responsibility for unsuccessful transactions. Fillers cover gas fees on behalf of traders and incorporate these costs into the overall swap prices. However, they can lower transaction costs by aggregating multiple orders, continually seeking the best price for users.
MEV protection
One of the significant advancements introduced by UniswapX is the protection against Maximum Extractable Value (MEV). The protocol discourages MEV practices by encouraging fillers to use private transaction relays, keeping swap information hidden from potential exploiters.
MEV, or Miner Extractable Value, refers to the profit that miners (or validators, in case of the Proof-of-Stake system) can make through their ability to include, exclude, or reorder transactions within the blocks they produce.
In Ethereum, validators have the power to determine the order of transactions, which can be exploited as the sequence of transactions affects the outcome of trading. For instance, when a substantial trade is imminent, it can temporarily influence the price of a token. In such cases, a validator could potentially front-run this transaction by prioritizing their own transaction ahead of others. This allows them to purchase the token first at a lower price before the significant trade affects the market, and then sell it at a higher price for profit.
This practice is controversial due to its potential to create an unfair advantage for validators or traders utilizing advanced bots and strategies, while smaller individual traders may suffer from poorer trade execution as a result.
What’s next
Currently, UniswapX is available on the Ethereum web app, with plans for expansion to other chains and integration into the Uniswap wallet in the near future. The final launch date has yet to be announced.
Looking ahead, Uniswap envisions UniswapX supporting gas-free cross-chain swaps.
