On-chain routing is becoming an increasingly important and complex issue in the cryptocurrency field. As innovative on-chain transactions continue to emerge, the number of liquidity pools has exploded. However, this has led to new fee levels, new Layer 2 (second-layer scaling solutions), and more on-chain protocols, resulting in fragmented liquidity.
In the future, it is expected that thousands of custom pools will be designed and built on Uniswap v4, making routing more challenging. To maintain competitive pricing, manual integration and extensive ongoing maintenance and work are required.
To address this issue, Uniswap has proposed a solution by outsourcing routing complexity to third-party fillers through an open network. Anyone can become a third-party filler for UniswapX swaps. These fillers can utilize on-chain liquidity from Automated Market Maker (AMM) mining pools or their private inventory to execute trades and compete to offer the best prices.
With UniswapX, traders will be able to trade using the Uniswap interface without worrying about obtaining the best prices. Additionally, all transactions will be transparently recorded and settled on-chain. The Uniswap smart order router supports all orders, forcing Swap Fillers to compete with Uniswap v1, v2, v3, and future v4.
Through UniswapX, traders sign a unique off-chain order that is then submitted on-chain by a builder who pays the gas fees on behalf of the trader. Because traders don't need to pay gas, they don't require native network tokens (e.g., ETH, MATIC) to conduct transactions or pay for failed transactions. The builder incorporates gas fees into the swap price but can lower transaction costs by competing for the best prices through batched orders. In specific cases, users may still need to pay for gas, such as the initial token approval for Permit 2. Additionally, native network tokens need to be wrapped when sold, incurring gas fees.
One of the unique advantages of UniswapX is its automated market maker algorithm. Compared to traditional exchanges, UniswapX's automated market maker can quickly adjust prices to match the needs of buyers and sellers, ensuring fairness and liquidity. The use of this algorithm enables UniswapX to provide a better trading experience and reduces price discrepancies between buyers and sellers.
Furthermore, UniswapX boasts extensive support for ERC20 tokens, which is another key reason for its market differentiation. Users can find a wide range of token pairs on UniswapX to meet different user demands. This broad token support enables UniswapX to attract more users and increase its market share.
Although UniswapX faces competition, its decentralized nature gives it certain advantages. Traditional exchanges require users to trust third parties and bear centralized risks, while UniswapX offers a safer and more decentralized trading method. This decentralized characteristic allows users to better protect their assets and mitigate potential risks.
In conclusion, as a decentralized trading protocol, UniswapX has significant potential in terms of market prospects and competition. Its automated market maker algorithm and extensive token support make it a powerful player. With the development of the cryptocurrency market, UniswapX is expected to continue attracting more users and play a significant role in the decentralized trading field.
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