Common Questions on Uniswap V3
Below are just my notes on how I understand some of the features of Uniswap V3 work. Technical details are kept to a high level with a focus on intuition.
What are Range Orders
Think of range orders as reversible limit orders. In a range order, a user provides one-sided liquidity to the pool in a particular price range. When the price of the asset crosses into that price range the provided liquidity of the user gets converted into the desired asset. When the price moves back into the pool after crossing if the liquidity is not pulled out in time the desired asset gets converted back into the original deposited asset.
Providing liquidity out of the current price range
The same as a range order. Once out of the current price range, liquidity is provided from one side only and the asset provided is the asset that is being traded out of the pool as the price moves into the new range.
What types of trades are possible on V3?
Take 2 assets ETH and DAI in a v3 pool.
Possible — Take Profit Order
If the price of ETH goes up relative to DAI, that means ETH is leaving the pool and DAI is entering the pool. You are able to place a range order to sell ETH (or buy DAI) at a higher price point than the current price of ETH to DAI. In this scenario since your ETH is converted into DAI in your limit order matching the outflow of ETH from the pool.
Not Possible — Buy Stop Order
You are not able to place an order to buy ETH (or sell DAI) in an attempt to capitalise and “buy on the way up” or “sell as the price rises” respectively since there is only an outflow of ETH and inflow of DAI so there is mismatch in flow.
Possible — Buy Limit Order
Likewise, if the price of ETH goes down relative to DAI (ETH enters the pool, DAI leaves), you are able to place a range order to buy ETH (or sell DAI) at a lower price point than the current price of ETH to DAI since your DAI will be converted to ETH thus matching fund flow.
Not Possible — Stop Loss Order
You are not able to place an order to sell ETH (or buy DAI) in an attempt to reduce potential loss in ETH value relative to DAI since there is only an outflow of DAI and inflow of ETH so there is a mismatch inflow.
How are token prices determined on V3?
The way price moves on V3 is slightly different from the way it moves on V2 due to the concentrated liquidity that V3 provides. The standard way prices are calculated in V2 still apply to V3 but only within each price range instead of across the entire pool. At each discrete price interval, there will be a different amount of liquidity provided for the asset pairs due to the concentrated liquidity model and thus each price interval has its own price curve calculated off of the liquidity in that range. This means that price movement for the assets won’t follow a single curve as it does in V2 but rather the curve is an aggregation of the price curves at each interval.
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