The decentralized and centralized exchanges have been battling within the cryptocurrency market. The leading DEX Uniswap claims that it outpaces its rivals Binance and Coinbase as far cryptocurrency market liquidity offering is concerned.
The narrative emerged as Uniswap ensures liquidity providers access to lucrative incentives and better pricing to investors. Uniswap Labs says the recent Uniswap DEX version, introduced last year, enables investors to complete large trades within their preferred price range.
The research used the market depth metric to compare liquidity between Uniswap and different centralized exchanges. Market depth indicates how much of an asset can trade against another at a specific price zone. Research highlights that executing a 5 million single trade on ETH/USD can save around $24,00 in Uniswap’s latest version, compared to Coinbase.
Nevertheless, Uniswap has a long journey to attain Binance’s level. For now, Uniswap V3 manages daily transfer volume worth $1.7 billion. Meanwhile, Binance supports $22 billion, whereas Coinbase handles $3 billion.
Latest Uniswap research’s co-author Dan Robinson told Bloomberg that the liquidity exceeding to centralized platform reflects how quickly global markets adopt decentralized innovations.
Uniswap Liquidity with Market Makers
Uniswap leverages the automated market maker (AMM) mechanism through a ‘smart’ contract that gauges the cost of converting a cryptocurrency to another. Uniswap users can offer liquidity to any available pool and receive fees from traders. That means exchanges do not have to depend on high-frequency trades in market making.
Nevertheless, AMM has a limitation. Bloomberg explained that the freedom with DEXs makes it smooth for developers to amplify interest for new tokens (of their making) before removing them from the marketplace, also referred to as pump and dump schemes. With Uniswap’s updated version, liquidity providers might also encounter the impermanent loss problem, which means dollars’ loss when the ‘market making’ volatile assets.
Uniswap exchange uses UNI as its native token. While publishing this blog, the alt traded at $7.31, following an 8.38% drop within the previous day. The massive fall comes as the overall marketplace recorded colossal declines within the past day. The market cap of all cryptos reflects the downbeats in the space, losing 7.24% within a day to $1.67 trillion.