12 April, 2024

Will Uniswap’s V3 Liquidity Skyrocket to a Staggering $1 Trillion?

15 Sep, 2023

27 Nov, 2023

  • Kaiko Research suggests Uniswap’s V3 liquidity could hit $1 trillion.
  • Just-in-time liquidity strategies are notably propelling the volume and income.
  • Top wallets show a preference for ETH over USDC, boosting LP profits.

According to a recent analysis by Kaiko, a research firm specializing in the blockchain economy, the liquidity of Uniswap’s Version 3 (V3) platform could be poised to reach an astonishing $1 trillion. Currently, at $75 billion, this forecast hinges on the implementation and success of Just-In-Time (JIT) liquidity strategies and the platform’s growing affinity for Ethereum (ETH) over the USD Coin (USDC).

The JIT liquidity strategy is a particular approach to liquidity provision in Automated Market Makers (AMMs) such as Uniswap. In this strategy, Liquidity Providers (LPs) create and liquidate a concentrated position just before and after a swap. This allows LPs to maximize their returns while minimizing exposure to price fluctuations. The report noted that JIT transactions in the Wrapped Ethereum (WETH)-USDC pool were significantly larger than standard transactions, often exceeding $10 million.

Source: Kaiko

Another interesting observation from Kaiko’s report is the preference of top wallet holders for ETH over USDC. By choosing to operate during periods when the price of ETH is declining, these liquidity providers are increasing their holdings of the more volatile but potentially more rewarding ETH, as opposed to the stable USDC. This strategy has increased profits for LPs and fueled the notion that Uniswap’s V3 liquidity could witness exponential growth.

Moreover, the JIT strategy has led to substantial fee earnings for LPs, who prefer JIT transactions, usually in the $20 million to $40 million range. This has allowed them to reduce their exposure to USDC while increasing their Ethereum holdings, thereby maximizing profits. The report mentioned that JIT transaction volume rebounded sharply after an initial decrease, crossing the $2 billion mark two months later.

Adding to this positive outlook, new JIT wallets on Uniswap have already clocked $15 billion in volume. While the number of market participants might be fewer, the sheer volume suggests that a trillion-dollar liquidity pool could be more than just a pipe dream. In sum, Kaiko’s analysis presented a compelling argument for Uniswap’s potential to redefine the landscape of decentralized finance (DeFi), driven by Just-In-Time liquidity strategies and a clear preference for Ethereum as an asset.


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