Research
The Uniswap Foundation supports the protocol's growth and decentralization through strategic research initiatives, empowering our community with grants and resources to conduct groundbreaking research and develop practical implementations that advance the frontier DeFi. Featured research from our community:
Layer 2 be or Layer not 2 be: Scaling on Uniswap v3
Authors: Austin Adams
This research paper analyzes how cheaper and faster blockchain networks impact Uniswap v3's performance compared to Ethereum mainnet, revealing that reduced transaction costs lead to better gas-adjusted execution and more efficient capital deployment by liquidity providers. Faster block times and lower costs enable increased arbitrage activity, resulting in higher fee returns for liquidity providers, though there's evidence that 2-second block times may not be optimal compared to a first-come-first-served model. Evidence suggests that many current AMM limitations stem from blockchain constraints rather than protocol design, and these issues can be significantly improved through faster, cheaper transactions.
Who Wins Ethereum Block Building Auctions and Why?
Authors: Burak Öz, Danning Sui, Thomas Thiery, Florian Matthes
The MEV-Boost block auction contributes approximately 90% of all Ethereum blocks. Between October 2023 and March 2024, only three builders produced 80% of them, highlighting the concentration of power within the block builder market. To foster competition and preserve Ethereum's decentralized ethos and censorship-resistance properties, understanding the dominant players' competitive edges is essential. This identifies features that play a significant role in builders' ability to win blocks and earn profits by conducting a comprehensive empirical analysis of MEV-Boost auctions over a six-month period.
MEV Capture and Decentralization in Execution Tickets
Authors: Jonah Burian, Davide Crapis, Fahad Saleh
Provides an economic model of Execution Tickets and uses it to study the ability of the Ethereum protocol to capture MEV from block construction, demonstrating that Execution Tickets extract all MEV when all buyers are homogeneous, risk neutral and face no capital costs. We also show that MEV capture decreases with risk aversion and capital costs. Moreover, when buyers are heterogeneous, MEV capture can be especially low and a single dominant buyer can extract much of the MEV. This adverse effect can be partially mitigated by the presence of a Proposer Builder Separation (PBS) mechanism, which gives ET buyers access to a market of specialized builders, but in practice centralization vectors still persist. With PBS, ETs are concentrated among those with the highest ex-ante MEV extraction ability and lowest cost of capital. We show how it is possible that large investors that are not builders but have substantial advantage in capital cost can come to dominate the ET market.
What Drives Liquidity on Decentralized Exchanges? Evidence from the Uniswap Protocol
Authors: Alex Evans
Geometric mean market makers (G3Ms), such as Uniswap and Balancer, comprise a popular class of automated market makers (AMMs) defined by the following rule: the reserves of the AMM before and after each trade must have the same (weighted) geometric mean. This paper extends several results known for constant-weight G3Ms to the general case of G3Ms with time-varying and potentially stochastic weights. These results include the returns and no-arbitrage prices of liquidity pool (LP) shares that investors receive for supplying liquidity to G3Ms. Using these expressions, we show how to create G3Ms whose LP shares replicate the payoffs of financial derivatives. The resulting hedges are model-independent and exact for derivative contracts whose payoff functions satisfy an elasticity constraint. These strategies allow LP shares to replicate various trading strategies and financial contracts, including standard options. G3Ms are thus shown to be capable of recreating a variety of active trading strategies through passive positions in LP shares.
The Evolution of Decentralized Exchange: Risks, Benefits, and Oversight
Authors: Campbell R. Harvey, Joel Hasbrouck, Fahad Saleh
A decentralized exchange or DEX is an application deployed on a blockchain that allows investors to exchange digital assets at pricing terms determined by a preset exchange rate formula. This technology has several unique features, including accessibility to all investors, transparency of pricing, and simultaneity of execution and settlement. Notably, trading via a DEX is feasible for any asset tokenized on a blockchain. In turn, given that assets such as stocks and bonds could be tokenized easily, it is particularly important to understand the risks posed by DEXs. This paper examines both the benefits and risks to investors from DEXs, explores the role of private and public liquidity pools and analyzes possible regulatory approaches.
Research Initiatives: Get Involved
TLDR (The Latest in DeFi Research): empowers engineers, academics, and students through research fellowships with grants and expert mentorship, culminating in an annual conference to showcase groundbreaking work.
CBER CtCe (Crafting the Cryptoeconomy): developed to generate and promote practical yet rigorous research in cryptoeconomics by connecting researchers, economists and practitioners through workshops, grants and conferences.
DEX Analytics Portal: accurate, verified, and ergonomic DEX and Uniswap datasets to save researchers time.