Why Curve is Better? DeFi Researcher: Uniswap Lacks Price Discovery, Trading Volume Driven by Arbitrage Rather Than Supply and Demand

DeFi researcher DeFi Cheetah's lengthy tweet "Curve Beats Uniswap" has sparked widespread discussion in the crypto community. He points out that Uniswap lacks profitability and pricing power, making it no longer the preferred platform for new coin issuance. In comparison, Curve, with more pricing power than Uniswap, has become the main price reference for stablecoins, stETH, and other pegged assets.

What Does Uniswap v3 Solve?

In v2, all liquidity funds were spread across all price ranges based on the constant product curve k=x*y. However, taking the recent Bitcoin price as an example, most trades occur around the $20,000 price range, leading to inefficient use of liquidity providers' funds. This is where v3 comes in.

v3 Drawbacks

1. Non-preferred Listing of New Tokens

In terms of liquidity fund application and depth, v3 is more beneficial than v2. Liquidity providers (LP) can customize price ranges, but they must actively adjust the prices of the liquidity deployment. If liquidity is not within the price range, LP will not earn v3 transaction fee revenue.

As coin prices fluctuate 24/7, with new coins having greater volatility, LPs need to constantly adjust liquidity to match the price range, resulting in high costs of managing liquidity. As a result, v3 mostly consists of lower volatility blue-chip tokens.

2. Majority of Trades Executed by Bots

The author cited researcher Alex's on-chain data from Dune, showing that around 43% of v3 trading volume comes from MEV bots.

3. How Does Uniswap Charge Fees?

While Curve Finance charges 50% of the fees to LPs, Uniswap gives 100% of the fees to LPs. Despite having a higher trading volume than Curve, Uniswap does not generate any revenue.

The author points out that over 70% of v3 trading volume is algorithm-driven, with less than 15% coming from retail traders. If transaction fees are further deducted and there are no trading incentives, it will further diminish LPs' motivation to provide liquidity on Uniswap.

If Uniswap were to charge LPs 50% of the fees like Curve, how would its trading volume and TVL change? You cannot assume that users will habitually trade on Uniswap over time. These trading volumes are not loyal. Unless front-end trading volumes increase significantly, the trading volume will only disappear once the platform officially starts charging fees.

Curve's Pricing Power

The author summarized a few points:

1. Compared to Uniswap, Curve has more pricing power and has become the main price reference for anchored assets. When determining whether stablecoins and stETH are unpegged, people refer to Curve rather than centralized exchanges.

2. Curve charges 50% of the fees to LPs and can still accumulate a large TVL through the VeToken mechanism.

3. Curve better embodies the spirit of Web3, where anyone can issue digital assets in a non-custodial manner.

4. Uniswap has increased users' costs for managing liquidity and failed to focus on becoming the preferred platform for issuing tokens, thereby losing pricing power.

Crypto Community Feedback

The following summarizes the crypto community's concerns regarding the author's article.

1. alphakΞY, korpi, nutstasher: Uniswap Can Also Customize Liquidity Price Ranges

Providing liquidity across the full price range in Uniswap v3 would earn far less for LPs than restricting to specific price intervals.

There will always be smaller liquidity ranges covering retail liquidity providers' liquidity, making it challenging for passive liquidity providers to profit.

2. Charles.deFi: New Coin Issuance Can Choose v2 Over v3; Pricing Power Should Depend onTrading Volume and TVL. Uniswap Still Dominates in the Long Run, and All DEXs Have Arbitrage Orders. Losing Pricing Power on Uniswap Cannot Be Solely Judged Based on This

The author believes that arbitrage occurs due to price differences between v3 and other pricing-powered exchanges, with v3 having a significantly higher share than Curve.

If v3 were a pricing-powered exchange, its main trading volume source should be market supply and demand, not arbitrage trading.