📜 [專欄新文章] Optimistic Rollup 就這樣用(2)
✍️ Juin Chiu
📥 歡迎投稿: https://medium.com/taipei-ethereum-meetup #徵技術分享文 #使用心得 #教學文 #medium
ERC721 的儲值、轉移與提領
TL;DR
本文會跳過 Optimistic Rollup 的介紹而直接實際演示,關於 Optimistic Rollup 的概念與設計原理筆者將在日後另撰文說明,有興趣的讀者可以先參考下列三篇文章(由淺入深):1. OVM Deep Dive 2. (Almost) Everything you need to know about Optimistic Rollup 3. How does Optimism’s Rollup really work?
本文將演示一個 Optimism Rollup 的 ERC721 範例,程式碼在這裡。
本演示大量參考了以下範例:Optimistic Rollup Example: ERC20。
本演示所使用的 ERC721 Gateway 合約來自這個提案,目前尚未成為官方標準。
環境設置
Git
Node.js
Yarn
Docker
Docker-compose
筆者沒有碰到環境相容問題,但是建議都升到最新版本, Node.js 使用 v16.1.0 或以上版本
Optimism 服務啟動
有關 Optimisim 的所有服務,都包裝在 Optimism 這個超大專案當中了,直接使用原始碼進行組建:
$ git clone git@github.com:ethereum-optimism/optimism.git$ cd optimism$ yarn$ yarn build
組建完成後,就可以在本機啟動服務了:
$ cd ops$ docker-compose build$ docker-compose up
這個指令會啟動數個服務,包括:
L1 Ethereum Node (EVM)
L2 Ethereum Node (OVM)
Batch Submitter
Data Transport Layer
Deployer
Relayer
Verifier
Deployer 服務中的一個參數要特別注意: FRAUD_PROOF_WINDOW_SECONDS,這個就是 OPtimistic Rollup 的挑戰期,代表使用者出金(Withdraw)需等候的時長。在本篇演示中預設為 0 秒。
如果有需要重啟,記得把整個 Docker Volume 也清乾淨,例如: docker-compose down -v
Optimism 整合測試
在繼續接下來的演示之前,我們需要先確認 Optimism 是否有順利啟動,特別是 Relayer 是否運作正常,因此我們需要先進行整合測試:
$ cd optimism/integration-tests$ yarn build:integration$ yarn test:integration
確保 L1 <--> L2 Communication 相關測試通過後再繼續執行接下來的演示內容。
啟動服務及部署合約需要花費一些時間,運行一段時間(約 120 秒)之後再執行測試,如果測試結果全部皆為 Fail,可能是 Optimism 尚未啟動完成,再等待一段時間即可。
ERC721 合約部署
Optimism 啟動成功並且完成整合測試後,接下來進行 ERC721 合約的部署。筆者已將合約及部署腳本放在 optimistic-rollup-example-erc721 這個專案中:
$ git clone git@github.com:ethereum-optimism/optimistic-rollup-example-erc721.git$ cd optimistic-rollup-example-erc721$ yarn install$ yarn compile
接下來我們需要部署以下合約:
ERC721,部署於 L1
L2DepositedEERC721,部署於 L2
OVM_L1ERC721Gateway,部署於 L1
OVM_L1ERC721Gateway 只部署在 L1 上,顧名思義它就是 L1 <=> L2 的「門戶」,提供 Deposit / Withdraw 兩個基本功能,使用者必須透過這個合約來進出 L2。
雖然 OVM_L1ERC20Gateway 是 Optimistic Rollup 官方提供的合約。但是開發者也可以依需求自行設計自己的「門戶」。
OVM_L1ERC20Gateway 目前沒有 Optimism 的官方實作,本演示所使用的 ERC721 Gateway 合約來自這個提案,目前尚未成為官方標準。
接下來,我們直接用腳本進行部署:
$ node ./deploy.jsDeploying L1 ERC721...L1 ERC2721 Contract Address: 0xFD471836031dc5108809D173A067e8486B9047A3Deploying L2 ERC721...L2 ERC721 Contract Address: 0x09635F643e140090A9A8Dcd712eD6285858ceBefDeploying L1 ERC721 Gateway...L1 ERC721 Gateway Contract Address: 0xcbEAF3BDe82155F56486Fb5a1072cb8baAf547ccInitializing L2 ERC721...
ERC721 鑄造、儲值、轉移與提領
鑄造(L1)
初始狀態如下,所有帳戶皆尚未持有任何代幣:
接下來,我們將鑄造 2 個代幣以進行接下來的演示。首先,進入 ETH(L1) 的 Console:
$ npx hardhat console --network ethWelcome to Node.js v16.1.0.Type ".help" for more information.>
取得 Deployer / User 帳戶:
// In Hardhat ETH Console
> let accounts = await ethers.getSigners()
> let deployer = accounts[0]
> let user = accounts[1]
取得 ERC721 及 OVM_L1ERC721Gateway 合約物件,合約地址可以從部署訊息中取得:
// In Hardhat ETH Console
> let ERC721_abi = await artifacts.readArtifact("ExampleToken").then(c => c.abi)
> let ERC721 = new ethers.Contract("0xFD471836031dc5108809D173A067e8486B9047A3", ERC721_abi)
> let Gateway_abi = await artifacts.readArtifact("OVM_L1ERC721Gateway").then(c => c.abi)
> let Gateway = new ethers.Contract("0xcbEAF3BDe82155F56486Fb5a1072cb8baAf547cc", Gateway_abi)
鑄造兩個 ERC721 代幣:
// In Hardhat ETH Console
> await ERC721.connect(deployer).mintToken(deployer.address, "foo")
{ hash: "...", ...}
> await ERC721.connect(deployer).mintToken(deployer.address, "bar")
{ hash: "...", ...}
只有合約的 Owner(deployer) 可以進行鑄造的操作。
確認 Deployer 餘額:
> await ERC721.connect(deployer).balanceOf(deployer.address)
BigNumber { _hex: '0x02', _isBigNumber: true } // 2
確認代幣的 TokenID 與 Owner:
> await ERC721.connect(deployer).ownerOf(1)
'0xf39Fd6e51aad88F6F4ce6aB8827279cffFb92266' // deployer
> await ERC721.connect(deployer).ownerOf(2)
'0xf39Fd6e51aad88F6F4ce6aB8827279cffFb92266' // deployer
儲值(L1 => L2)
完成以上步驟後,目前的狀態如下:
接下來,授權 OVM_L1ERC721Gateway使用 TokenID 為 2 的代幣:
// In Hardhat ETH Console
> await ERC721.connect(deployer).approve("0xcbEAF3BDe82155F56486Fb5a1072cb8baAf547cc", 2)
{ hash: "...", ...}
在 OVM_L1ERC721Gateway 合約呼叫 Deposit,儲值 TokenID 為 2 的代幣:
// In Hardhat ETH Console
> await Gateway.connect(deployer).deposit(2)
{ hash: "...", ...}
我們可以到 Optimism (L2) 的 Console 確認入金是否成功:
$ npx hardhat console --network optimismWelcome to Node.js v16.1.0.Type ".help" for more information.>
取得 Deployer / User 帳戶:
// In Hardhat Optimism Console
> let accounts = await ethers.getSigners()
> let deployer = accounts[0]
> let user = accounts[1]
取得 L2DepositedERC721 合約物件,合約地址可以從部署訊息中取得:
// In Hardhat Optimism Console
> let L2ERC721_abi = await artifacts.readArtifact("OVM_L2DepositedERC721").then(c => c.abi)
> let L2DepositedERC721 = new ethers.Contract("0x09635F643e140090A9A8Dcd712eD6285858ceBef", L2ERC721_abi)
確認入金是否成功:
// In Hardhat Optimism Console
> await L2DepositedERC721.connect(deployer).balanceOf(deployer.address)
BigNumber { _hex: '0x01', _isBigNumber: true } // 1
> await L2DepositedERC721.connect(deployer).ownerOf(2)
'0xf39Fd6e51aad88F6F4ce6aB8827279cffFb92266' // deployer
ERC721 轉移(L2 <=> L2)
完成以上步驟後,目前的狀態如下:
接下來,我們在 L2 從 Deployer 轉移代幣給 User:
// In Hardhat Optimism Console
> await L2DepositedERC721.connect(user).balanceOf(user.address)
BigNumber { _hex: '0x00', _isBigNumber: true } // 0
> await L2DepositedERC721.connect(deployer).transferFrom(depoyer.address, user.address, 2)
{ hash: "..." ...}
> await L2DepositedERC721.connect(user).balanceOf(user.address)
BigNumber { _hex: '0x01', _isBigNumber: true } // 1
> await L2DepositedERC721.connect(user).ownerOf(2)
'0x70997970C51812dc3A010C7d01b50e0d17dc79C8' // user
ERC721 提領(L2 => L1)
完成以上步驟後,目前的狀態如下:
接下來,我們用 User 帳戶提領資金,在 L2DepositedERC721 合約呼叫 Withdraw:
// In Hardhat Optimism Console
> await L2DepositedERC721.connect(user).withdraw(2)
{ hash: "..." ...}
> await L2DepositedERC721.connect(user).balanceOf(user.address)
BigNumber { _hex: '0x00', _isBigNumber: true }
最後,檢查在 L1 是否提領成功:
// In Hardhat ETH Console
> await ERC721.connect(user).balanceOf(user.address)
BigNumber { _hex: '0x01', _isBigNumber: true } // 1
> await ERC721.connect(deployer).balanceOf(deployer.address)
BigNumber { _hex: '0x01', _isBigNumber: true } // 1
> await ERC721.connect(user).ownerOf(2)
'0x70997970C51812dc3A010C7d01b50e0d17dc79C8' // user
由於挑戰期為 0 秒,因此提領幾乎無需等待時間,頂多只需數秒鐘
做完上述所有操作,最終狀態應該如下:
總結
本文演示了:
Optimistic Rollup 相關服務的本機部署
ERC721 L1 => L2 的儲值(Deposit)
ERC721 L2 帳戶之間轉移(Transfer)
ERC721 L2 => L1 的提領(Withdraw)
筆者未來將繼續擴充此系列的教學內容,例如支援其他標準的合約如 ERC1155,以及如何運行 Optimistic Rollup 生態系中最重要的驗證者(Verifier),敬請期待。
參考資料
OVM Deep Dive
(Almost) Everything you need to know about Optimistic Rollup
How does Optimism’s Rollup really work?
Optimistic Rollup Official Documentation
Ethers Documentation (v5)
Optimistic Rollup Example: ERC20(Github)
Optimism (Github)
optimism-tutorial (Github)
l1-l2-deposit-withdrawal (Github)
Proof-of-concept ERC721 Bridge Implementation (Github)
Optimistic Rollup 就這樣用(2) was originally published in Taipei Ethereum Meetup on Medium, where people are continuing the conversation by highlighting and responding to this story.
👏 歡迎轉載分享鼓掌
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user story example 在 Taipei Ethereum Meetup Facebook 的精選貼文
📜 [專欄新文章] Optimistic Rollup 就這樣用(1)
✍️ Juin Chiu
📥 歡迎投稿: https://medium.com/taipei-ethereum-meetup #徵技術分享文 #使用心得 #教學文 #medium
ERC20 的入金、轉帳與出金
TL;DR
本文會跳過 Optimistic Rollup 的介紹而直接實際演示,關於 Optimistic Rollup 的概念與設計原理我將在日後另撰文說明,有興趣的讀者可以先參考下列三篇文章(由淺入深):1. OVM Deep Dive 2. (Almost) Everything you need to know about Optimistic Rollup 3. How does Optimism’s Rollup really work?
本文將演示一個 Optimism Rollup 範例,程式碼在這裡。
本演示大量參考了以下這兩個官方範例:optimism-tutorial、l1-l2-deposit-withdrawal。
環境設置
Git
Node.js
Yarn
Docker
Docker-compose
筆者沒有碰到環境相容問題,但是建議都升到最新版本, Node.js 使用 v16.1.0 或以上版本
Optimism 服務啟動
有關 Optimisim 的所有服務,都包裝在 Optimism 這個超大專案當中了,直接使用原始碼進行組建:
$ git clone git@github.com:ethereum-optimism/optimism.git$ cd optimism$ yarn$ yarn build
組建完成後,就可以在本機啟動服務了:
$ cd ops$ docker-compose build$ docker-compose up
這個指令會啟動數個服務,包括:
L1 Ethereum Node (EVM)
L2 Ethereum Node (OVM)
Batch Submitter
Data Transport Layer
Deployer
Relayer
Verifier
Deployer 服務中的一個參數要特別注意: FRAUD_PROOF_WINDOW_SECONDS,這個就是 Optimistic Rollup 的挑戰期,代表使用者出金(Withdraw)需等候的時長。在本篇演示中預設為 0 秒。
如果有需要重啟,記得把整個 Docker Volume 也清乾淨,例如: docker-compose down -v
Optimism 整合測試
在繼續接下來的演示之前,我們需要先確認 Optimism 是否有順利啟動,特別是 Relayer 是否運作正常,因此我們需要先進行整合測試:
$ cd optimism/integration-tests$ yarn build:integration$ yarn test:integration
確保 L1 <--> L2 Communication 相關測試通過後再繼續執行接下來的演示內容。
啟動服務及部署合約需要花費一些時間,運行一段時間(約 120 秒)之後再執行測試,如果測試結果全部皆為 Fail,可能是 Optimism 尚未啟動完成,再等待一段時間即可。
ERC20 合約部署
Optimism 啟動成功並且完成整合測試後,接下來進行 ERC20 合約的部署。筆者已將合約及部署腳本放在 optimistic-rollup-example-erc20 這個專案中:
$ git clone git@github.com:ethereum-optimism/optimistic-rollup-example-erc20.git$ cd optimistic-rollup-example-erc20$ yarn install$ yarn compile
接下來我們需要部署以下合約:
ERC20,部署於 L1
L2DepositedEERC20,部署於 L2
OVM_L1ERC20Gateway,部署於 L1
其中,ERC20 與 L2DepositedERC20 是由上面的範例專案編譯的,可以直接在範例專案中直接取得 ABI;而 OVM_L1ERC20Gateway 則是由 Optimism 編譯的,屬於 Optimistic Rollup 協定的一部分,無法直接在範例專案中取得 ABI。
因此在部署以上三個合約前,我們需先手動將 OVM_L1ERC20Gateway 編譯後的生成品 (Artifacts)——即 ABI,複製到此專案中:
$ cp -r ~/projects/optimism/packages/contracts/artifacts/contracts/optimistic-ethereum/OVM/bridge/tokens/OVM_L1ERC20Gateway.sol ~/projects/optimistic-rollup-example-erc20/artifacts/contracts/
OVM_L1ERC20Gateway 只部署在 L1 上,顧名思義它就是 L1 <=> L2 的「門戶」,提供 Deposit / Withdraw 兩個基本功能,使用者必須透過這個合約來進出 L2。
雖然 OVM_L1ERC20Gateway 是 Optimistic Rollup 官方提供的合約。但是開發者也可以依需求自行設計自己的「門戶」。
接下來,我們直接用腳本進行部署:
$ node ./deploy.jsDeploying L1 ERC20...Deploying L1 ERC20...L1 ERC20 Contract Address: 0x1429859428C0aBc9C2C47C8Ee9FBaf82cFA0F20fDeploying L2 ERC20...L2 ERC20 Contract Address: 0x67d269191c92Caf3cD7723F116c85e6E9bf55933Deploying L1 ERC20 Gateway...L1 ERC20 Gateway Contract Address: 0xB0D4afd8879eD9F52b28595d31B441D079B2Ca07Initializing L2 ERC20...
ERC20 入金、轉帳與出金
ERC20 入金(L1 => L2)
目前餘額:
在合約部署完成後,Deployer 是目前唯一有資金的帳戶,接下來我們就進行入金(Deposit),將 Deployer 的資金從 L1 搬到 L2。
首先,進入 ETH(L1) 的 Console:
$ npx hardhat console --network ethWelcome to Node.js v16.1.0.Type ".help" for more information.>
取得 Deployer / User 帳戶:
// In Hardhat ETH Console
> let accounts = await ethers.getSigners()> let deployer = accounts[0]> let user = accounts[1]
取得 ERC20 及 OVM_L1ERC20Gateway 合約物件,合約地址可以從部署訊息中取得:
// In Hardhat ETH Console
> let ERC20_abi = await artifacts.readArtifact("ERC20").then(c => c.abi)> let ERC20 = new ethers.Contract("0x1429859428C0aBc9C2C47C8Ee9FBaf82cFA0F20f", ERC20_abi)> let Gateway_abi = await artifacts.readArtifact("OVM_L1ERC20Gateway").then(c => c.abi)> let Gateway = new ethers.Contract("0xB0D4afd8879eD9F52b28595d31B441D079B2Ca07", Gateway_abi)
先授權 OVM_L1ERC20Gateway 花費 ERC20:
// In Hardhat ETH Console
> await ERC20.connect(deployer).approve("0xB0D4afd8879eD9F52b28595d31B441D079B2Ca07", 10000)> await ERC20.connect(user).approve("0xB0D4afd8879eD9F52b28595d31B441D079B2Ca07", 10000)
注意:Deployer 及 User 都需要對 OVM_L1ERC20Gateway 進行授權,否則在接下來的出金步驟時 Relayer 會出錯
接著,在 OVM_L1ERC20Gateway 合約呼叫 Deposit:
// In Hardhat ETH Console
> await Gateway.connect(deployer).deposit(1000)
我們可以到 Optimism (L2) 的 Console 確認入金是否成功:
$ npx hardhat console --network optimismWelcome to Node.js v16.1.0.Type ".help" for more information.>
取得 Deployer / User 帳戶:
// In Hardhat Optimism Console
> let accounts = await ethers.getSigners()> let deployer = accounts[0]> let user = accounts[1]
取得 L2DepositedERC20 合約物件,合約地址可以從部署訊息中取得:
// In Hardhat Optimism Console
> let L2ERC20_abi = await artifacts.readArtifact("L2DepositedERC20").then(c => c.abi)> let L2DepositedERC20 = new ethers.Contract("0x67d269191c92Caf3cD7723F116c85e6E9bf55933", L2ERC20_abi)
確認入金是否成功:
// In Hardhat Optimism Console
> await L2DepositedERC20.connect(deployer).balanceOf(deployer.address)BigNumber { _hex: '0x03E8', _isBigNumber: true } // 1000
ERC20 轉帳(L2 <=> L2)
完成以上步驟後,目前的餘額如下:
接下來,我們在 L2 從 Deployer 轉移一部分資金給 User:
// In Hardhat Optimism Console
> await L2DepositedERC20.connect(user).balanceOf(user.address)BigNumber { _hex: '0x00', _isBigNumber: true } // 0> await L2DepositedERC20.connect(deployer).transfer(user.address, 1000){ hash: "..." ...}> await L2DepositedERC20.connect(wallet_1).balanceOf(user.address)BigNumber { _hex: '0x03E8', _isBigNumber: true } // 1000
ERC20 出金(L2 => L1)
完成以上步驟後,目前的餘額如下:
接下來,我們用 User 帳戶提領資金,在 L2DepositedERC20 合約呼叫 Withdraw:
// In Hardhat Optimism Console
> await L2DepositedERC20.connect(user).withdraw(1000){ hash: "..." ...}> await L2DepositedERC20.connect(user).balanceOf(user.address)BigNumber { _hex: '0x00', _isBigNumber: true }
最後,檢查在 L1 是否提領成功:
// In Hardhat ETH Console
> await ERC20.connect(user).balanceOf(user.address)BigNumber { _hex: '0x03E8', _isBigNumber: true } // 1000
由於挑戰期為 0 秒,因此提領幾乎無需等待時間,頂多只需數秒鐘
做完上述所有操作,餘額應該如下:
總結
本文演示了:
Optimistic Rollup 相關服務的本機部署
ERC20 L1 => L2 的入金(Deposit)
ERC20 L2 帳戶之間轉帳(Transfer)
ERC20 L2 => L1 的出金(Withdraw)
筆者未來將繼續擴充此系列的教學內容,例如 ERC721 / ERC1155 的使用方式,敬請期待。
參考資料
OVM Deep Dive
(Almost) Everything you need to know about Optimistic Rollup
How does Optimism’s Rollup really work?
Optimistic Rollup Official Documentation
Ethers Documentation (v5)
Optimism (Github)
optimism-tutorial (Github)
l1-l2-deposit-withdrawal (Github)
Optimistic Rollup 就這樣用(1) was originally published in Taipei Ethereum Meetup on Medium, where people are continuing the conversation by highlighting and responding to this story.
👏 歡迎轉載分享鼓掌
user story example 在 Taipei Ethereum Meetup Facebook 的最讚貼文
📜 [專欄新文章] Uniswap v3 Features Explained in Depth
✍️ 田少谷 Shao
📥 歡迎投稿: https://medium.com/taipei-ethereum-meetup #徵技術分享文 #使用心得 #教學文 #medium
Once again the game-changing DEX 🦄 👑
Image source: https://uniswap.org/blog/uniswap-v3/
Outline
0. Intro1. Uniswap & AMM recap2. Ticks 3. Concentrated liquidity4. Range orders: reversible limit orders5. Impacts of v36. Conclusion
0. Intro
The announcement of Uniswap v3 is no doubt one of the most exciting news in the DeFi place recently 🔥🔥🔥
While most have talked about the impact v3 can potentially bring on the market, seldom explain the delicate implementation techniques to realize all those amazing features, such as concentrated liquidity, limit-order-like range orders, etc.
Since I’ve covered Uniswap v1 & v2 (if you happen to know Mandarin, here are v1 & v2), there’s no reason for me to not cover v3 as well ✅
Thus, this article aims to guide readers through Uniswap v3, based on their official whitepaper and examples made on the announcement page. However, one needs not to be an engineer, as not many codes are involved, nor a math major, as the math involved is definitely taught in your high school, to fully understand the following content 😊😊😊
If you really make it through but still don’t get shxt, feedbacks are welcomed! 🙏
There should be another article focusing on the codebase, so stay tuned and let’s get started with some background noise!
1. Uniswap & AMM recap
Before diving in, we have to first recap the uniqueness of Uniswap and compare it to traditional order book exchanges.
Uniswap v1 & v2 are a kind of AMMs (automated market marker) that follow the constant product equation x * y = k, with x & y stand for the amount of two tokens X and Y in a pool and k as a constant.
Comparing to order book exchanges, AMMs, such as the previous versions of Uniswap, offer quite a distinct user experience:
AMMs have pricing functions that offer the price for the two tokens, which make their users always price takers, while users of order book exchanges can be both makers or takers.
Uniswap as well as most AMMs have infinite liquidity¹, while order book exchanges don’t. The liquidity of Uniswap v1 & v2 is provided throughout the price range [0,∞]².
Uniswap as well as most AMMs have price slippage³ and it’s due to the pricing function, while there isn’t always price slippage on order book exchanges as long as an order is fulfilled within one tick.
In an order book, each price (whether in green or red) is a tick. Image source: https://ftx.com/trade/BTC-PERP
¹ though the price gets worse over time; AMM of constant sum such as mStable does not have infinite liquidity
² the range is in fact [-∞,∞], while a price in most cases won’t be negative
³ AMM of constant sum does not have price slippage
2. Tick
The whole innovation of Uniswap v3 starts from ticks.
For those unfamiliar with what is a tick:
Source: https://www.investopedia.com/terms/t/tick.asp
By slicing the price range [0,∞] into numerous granular ticks, trading on v3 is highly similar to trading on order book exchanges, with only three differences:
The price range of each tick is predefined by the system instead of being proposed by users.
Trades that happen within a tick still follows the pricing function of the AMM, while the equation has to be updated once the price crosses the tick.
Orders can be executed with any price within the price range, instead of being fulfilled at the same one price on order book exchanges.
With the tick design, Uniswap v3 possesses most of the merits of both AMM and an order book exchange! 💯💯💯
So, how is the price range of a tick decided?
This question is actually somewhat related to the tick explanation above: the minimum tick size for stocks trading above 1$ is one cent.
The underlying meaning of a tick size traditionally being one cent is that one cent (1% of 1$) is the basis point of price changes between ticks, ex: 1.02 — 1.01 = 0.1.
Uniswap v3 employs a similar idea: compared to the previous/next price, the price change should always be 0.01% = 1 basis point.
However, notice the difference is that in the traditional basis point, the price change is defined with subtraction, while here in Uniswap it’s division.
This is how price ranges of ticks are decided⁴:
Image source: https://uniswap.org/whitepaper-v3.pdf
With the above equation, the tick/price range can be recorded in the index form [i, i+1], instead of some crazy numbers such as 1.0001¹⁰⁰ = 1.0100496621.
As each price is the multiplication of 1.0001 of the previous price, the price change is always 1.0001 — 1 = 0.0001 = 0.01%.
For example, when i=1, p(1) = 1.0001; when i=2, p(2) = 1.00020001.
p(2) / p(1) = 1.00020001 / 1.0001 = 1.0001
See the connection between the traditional basis point 1 cent (=1% of 1$) and Uniswap v3’s basis point 0.01%?
Image source: https://tenor.com/view/coin-master-cool-gif-19748052
But sir, are prices really granular enough? There are many shitcoins with prices less than 0.000001$. Will such prices be covered as well?
Price range: max & min
To know if an extremely small price is covered or not, we have to figure out the max & min price range of v3 by looking into the spec: there is a int24 tick state variable in UniswapV3Pool.sol.
Image source: https://uniswap.org/whitepaper-v3.pdf
The reason for a signed integer int instead of an uint is that negative power represents prices less than 1 but greater than 0.
24 bits can cover the range between 1.0001 ^ (2²³ — 1) and 1.0001 ^ -(2)²³. Even Google cannot calculate such numbers, so allow me to offer smaller values to have a rough idea of the whole price range:
1.0001 ^ (2¹⁸) = 242,214,459,604.341
1.0001 ^ -(2¹⁷) = 0.000002031888943
I think it’s safe to say that with a int24 the range can cover > 99.99% of the prices of all assets in the universe 👌
⁴ For implementation concern, however, a square root is added to both sides of the equation.
How about finding out which tick does a price belong to?
Tick index from price
The answer to this question is rather easy, as we know that p(i) = 1.0001^i, simply takes a log with base 1.0001 on both sides of the equation⁴:
Image source: https://www.codecogs.com/latex/eqneditor.php
Let’s try this out, say we wanna find out the tick index of 1000000.
Image source: https://ncalculators.com/number-conversion/log-logarithm-calculator.htm
Now, 1.0001¹³⁸¹⁶² = 999,998.678087146. Voila!
⁵ This formula is also slightly modified to fit the real implementation usage.
3. Concentrated liquidity
Now that we know how ticks and price ranges are decided, let’s talk about how orders are executed in a tick, what is concentrated liquidity and how it enables v3 to compete with stablecoin-specialized DEXs (decentralized exchange), such as Curve, by improving the capital efficiency.
Concentrated liquidity means LPs (liquidity providers) can provide liquidity to any price range/tick at their wish, which causes the liquidity to be imbalanced in ticks.
As each tick has a different liquidity depth, the corresponding pricing function x * y = k also won’t be the same!
Each tick has its own liquidity depth. Image source: https://uniswap.org/blog/uniswap-v3/
Mmm… examples are always helpful for abstract descriptions 😂
Say the original pricing function is 100(x) * 1000(y) = 100000(k), with the price of X token 1000 / 100 = 10 and we’re now in the price range [9.08, 11.08].
If the liquidity of the price range [11.08, 13.08] is the same as [9.08, 11.08], we don’t have to modify the pricing function if the price goes from 10 to 11.08, which is the boundary between two ticks.
The price of X is 1052.63 / 95 = 11.08 when the equation is 1052.63 * 95 = 100000.
However, if the liquidity of the price range [11.08, 13.08] is two times that of the current range [9.08, 11.08], balances of x and y should be doubled, which makes the equation become 2105.26 * 220 = 400000, which is (1052.63 * 2) * (110 * 2) = (100000 * 2 * 2).
We can observe the following two points from the above example:
Trades always follow the pricing function x * y = k, while once the price crosses the current price range/tick, the liquidity/equation has to be updated.
√(x * y) = √k = L is how we represent the liquidity, as I say the liquidity of x * y = 400000 is two times the liquidity of x * y = 100000, as √(400000 / 100000) = 2.
What’s more, compared to liquidity on v1 & v2 is always spread across [0,∞], liquidity on v3 can be concentrated within certain price ranges and thus results in higher capital efficiency from traders’ swapping fees!
Let’s say if I provide liquidity in the range [1200, 2800], the capital efficiency will then be 4.24x higher than v2 with the range [0,∞] 😮😮😮 There’s a capital efficiency comparison calculator, make sure to try it out!
Image source: https://uniswap.org/blog/uniswap-v3/
It’s worth noticing that the concept of concentrated liquidity was proposed and already implemented by Kyper, prior to Uniswap, which is called Automated Price Reserve in their case.⁵
⁶ Thanks to Yenwen Feng for the information.
4. Range orders: reversible limit orders
As explained in the above section, LPs of v3 can provide liquidity to any price range/tick at their wish. Depending on the current price and the targeted price range, there are three scenarios:
current price < the targeted price range
current price > the targeted price range
current price belongs to the targeted price range
The first two scenarios are called range orders. They have unique characteristics and are essentially fee-earning reversible limit orders, which will be explained later.
The last case is the exact same liquidity providing mechanism as the previous versions: LPs provide liquidity in both tokens of the same value (= amount * price).
There’s also an identical product to the case: grid trading, a very powerful investment tool for a time of consolidation. Dunno what’s grid trading? Check out Binance’s explanation on this, as this topic won’t be covered!
In fact, LPs of Uniswap v1 & v2 are grid trading with a range of [0,∞] and the entry price as the baseline.
Range orders
To understand range orders, we’d have to first revisit how price is discovered on Uniswap with the equation x * y = k, for x & y stand for the amount of two tokens X and Y and k as a constant.
The price of X compared to Y is y / x, which means how many Y one can get for 1 unit of X, and vice versa the price of Y compared to X is x / y.
For the price of X to go up, y has to increase and x decrease.
With this pricing mechanism in mind, it’s example time!
Say an LP plans to place liquidity in the price range [15.625, 17.313], higher than the current price of X 10, when 100(x) * 1000(y) = 100000(k).
The price of X is 1250 / 80 = 15.625 when the equation is 80 * 1250 = 100000.
The price of X is 1315.789 / 76 = 17.313 when the equation is 76 * 1315.789 = 100000.
If now the price of X reaches 15.625, the only way for the price of X to go even higher is to further increase y and decrease x, which means exchanging a certain amount of X for Y.
Thus, to provide liquidity in the range [15.625, 17.313], an LP needs only to prepare 80 — 76 = 4 of X. If the price exceeds 17.313, all 4 X of the LP is swapped into 1315.789 — 1250 = 65.798 Y, and then the LP has nothing more to do with the pool, as his/her liquidity is drained.
What if the price stays in the range? It’s exactly what LPs would love to see, as they can earn swapping fees for all transactions in the range! Also, the balance of X will swing between [76, 80] and the balance of Y between [1250, 1315.789].
This might not be obvious, but the example above shows an interesting insight: if the liquidity of one token is provided, only when the token becomes more valuable will it be exchanged for the less valuable one.
…wut? 🤔
Remember that if 4 X is provided within [15.625, 17.313], only when the price of X goes up from 15.625 to 17.313 is 4 X gradually swapped into Y, the less valuable one!
What if the price of X drops back immediately after reaching 17.313? As X becomes less valuable, others are going to exchange Y for X.
The below image illustrates the scenario of DAI/USDC pair with a price range of [1.001, 1.002] well: the pool is always composed entirely of one token on both sides of the tick, while in the middle 1.001499⁶ is of both tokens.
Image source: https://uniswap.org/blog/uniswap-v3/
Similarly, to provide liquidity in a price range < current price, an LP has to prepare a certain amount of Y for others to exchange Y for X within the range.
To wrap up such an interesting feature, we know that:
Only one token is required for range orders.
Only when the current price is within the range of the range order can LP earn trading fees. This is the main reason why most people believe LPs of v3 have to monitor the price more actively to maximize their income, which also means that LPs of v3 have become arbitrageurs 🤯
I will be discussing more the impacts of v3 in 5. Impacts of v3.
⁷ 1.001499988 = √(1.0001 * 1.0002) is the geometric mean of 1.0001 and 1.0002. The implication is that the geometric mean of two prices is the average execution price within the range of the two prices.
Reversible limit orders
As the example in the last section demonstrates, if there is 4 X in range [15.625, 17.313], the 4 X will be completely converted into 65.798 Y when the price goes over 17.313.
We all know that a price can stay in a wide range such as [10, 11] for quite some time, while it’s unlikely so in a narrow range such as [15.625, 15.626].
Thus, if an LP provides liquidity in [15.625, 15.626], we can expect that once the price of X goes over 15.625 and immediately also 15.626, and does not drop back, all X are then forever converted into Y.
The concept of having a targeted price and the order will be executed after the price is crossed is exactly the concept of limit orders! The only difference is that if the range of a range order is not narrow enough, it’s highly possible that the conversion of tokens will be reverted once the price falls back to the range.
As price ranges follow the equation p(i) = 1.0001 ^ i, the range can be quite narrow and a range order can thus effectively serve as a limit order:
When i = 27490, 1.0001²⁷⁴⁹⁰ = 15.6248.⁸
When i = 27491, 1.0001²⁷⁴⁹¹ = 15.6264.⁸
A range of 0.0016 is not THAT narrow but can certainly satisfy most limit order use cases!
⁸ As mentioned previously in note #4, there is a square root in the equation of the price and index, thus the numbers here are for explantion only.
5. Impacts of v3
Higher capital efficiency, LPs become arbitrageurs… as v3 has made tons of radical changes, I’d like to summarize my personal takes of the impacts of v3:
Higher capital efficiency makes one of the most frequently considered indices in DeFi: TVL, total value locked, becomes less meaningful, as 1$ on Uniswap v3 might have the same effect as 100$ or even 2000$ on v2.
The ease of spot exchanging between spot exchanges used to be a huge advantage of spot markets over derivative markets. As LPs will take up the role of arbitrageurs and arbitraging is more likely to happen on v3 itself other than between DEXs, this gap is narrowed … to what extent? No idea though.
LP strategies and the aggregation of NFT of Uniswap v3 liquidity token are becoming the blue ocean for new DeFi startups: see Visor and Lixir. In fact, this might be the turning point for both DeFi and NFT: the two main reasons of blockchain going mainstream now come to the alignment of interest: solving the $$ problem 😏😏😏
In the right venue, which means a place where transaction fees are low enough, such as Optimism, we might see Algo trading firms coming in to share the market of designing LP strategies on Uniswap v3, as I believe Algo trading is way stronger than on-chain strategies or DAO voting to add liquidity that sort of thing.
After reading this article by Parsec.finance: The Dex to Rule Them All, I cannot help but wonder: maybe there is going to be centralized crypto exchanges adopting v3’s approach. The reason is that since orders of LPs in the same tick are executed pro-rata, the endless front-running speeding-competition issue in the Algo trading world, to some degree, is… solved? 🤔
Anyway, personal opinions can be biased and seriously wrong 🙈 I’m merely throwing out a sprat to catch a whale. Having a different voice? Leave your comment down below!
6. Conclusion
That was kinda tough, isn’t it? Glad you make it through here 🥂🥂🥂
There are actually many more details and also a huge section of Oracle yet to be covered. However, since this article is more about features and targeting normal DeFi users, I’ll leave those to the next one; hope there is one 😅
If you have any doubt or find any mistake, please feel free to reach out to me and I’d try to reply AFAP!
Stay tuned and in the meantime let’s wait and see how Uniswap v3 is again pioneering the innovation of DeFi 🌟
Uniswap v3 Features Explained in Depth was originally published in Taipei Ethereum Meetup on Medium, where people are continuing the conversation by highlighting and responding to this story.
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