Research Summary
The article provides an in-depth analysis of Uniswap trading. The author discusses the impact of gas fees on each trade, which he likens to the bid-ask spread that the Ethereum network captures on every Uniswap trade. The article also explores how improving gas efficiency in infrastructure design could save Liquidity Providers (LPs) a significant amount of gas, especially when blockspace is in high demand. The author concludes by posing several open questions about increasing gas efficiency for on-chain trading, redistributing validator incentives back to LPs, and ways to increase profitability for LPs.
Actionable Insights
- Monitor Gas Efficiency: The article highlights the importance of improving gas efficiency in infrastructure design. This could save LPs a significant amount of gas, especially when blockspace is in high demand.
- Assess LP Profitability: The author suggests that one way to increase profitability for LPs is by using a dynamic fee policy that widens spreads in periods of high volatility.
- Stay Informed on Trading Segmentation: The author proposes the idea of segmenting order flow to shift the equilibrium in favor of LPs. This involves allowing only smaller, less toxic flow and excluding larger, more toxic flow.
