Would Uniswap be better off on its own appchain?

The appchain model gives the community true “ownership of the application,” Blockworks Research analyst David Rodriguez argues

article-image

Vector-3D/Shutterstock modified by Blockworks

share

The latest improvements to Uniswap, the largest decentralized crypto exchange by volume, are on their way, with draft code recently released for the community to scrutinize. 

The V4 update will introduce a number of improvements, including “hooks” — smart contracts that interact and build on top of custom pools — and architectural efficiencies that should significantly reduce gas costs.

So once V4 is settled, what’s coming up for Uniswap?

On a recent Empire podcast (Spotify / Apple), Blockworks research analyst David Rodriguez says the next “obvious step” would be for Uniswap to operate its own appchain.

Owning and operating “the entire stack,” as opposed to running on Ethereum, provides important advantages, Rodriguez says. 

“Not only can you potentially monetize at every layer of the stack, but because you own that full stack, you’re actually able to have full customization of your application.”

On an appchain like those offered in the Cosmos ecosystem, applications and chains are “aware of each other,” Rodriguez explains. “So there’s application-specific logic that you can bake into how your chain actually comes to consensus.”

Bending the knee

Rodriguez mentions one example of the difficulties of operating on the Ethereum network with the upcoming “singleton contract” under V4. It reduces gas fees by allowing tokens to be transferred via a single contract instead of between pools held in different smart contracts. 

But to enable the most efficient routing, he says, Uniswap “needs transient storage to be baked into Ethereum.”

Such a particular change to the Ethereum network could be perceived as “catering to a specific protocol,” Rodriguez says.

The research analyst says past arguments regarding this issue centered on whether Ethereum should be “bending the knee to Uniswap,” changing its roadmap to prioritize the popular DeFi primitive over other applications in the ecosystem.

If the Uniswap community simply wants to build the best product, it can build its own full stack on an appchain and operate independently of other network demands, Rodriguez says. 

“You don’t have to start politicizing or lobbying for a reason why your specific op code that you want in Ethereum needs to go ahead of others.”

The appchain model gives the community true “ownership of the application,” Rodriguez argues. “Whereas right now, everything that’s built on Ethereum is really at the mercy of Ethereum.”

Capturing value

Blockworks research analyst Ren Yu Kong disagrees. “V4, to me, signifies that Uniswap may not go to an appchain model,” he says.

The major reason for a DeFi application to move to the appchain model would be for “value capture,” Kong says. 

That is accomplished in two ways, Kong says. Either through the “internalization of MEV” — where value from network activities is returned to the protocol rather than external MEV actors — or turning on a fee switch.

Under V4’s improvements, Kong says, the “hook” smart contract improvement allows for some internalization of MEV — a narrative that is being “publicly pushed by Uniswap themselves,” with Uniswap-backer Paradigm Capital’s Dan Robinson promoting the approach, Kong says.

“Now you have withdrawal fees. Now you have swap fees.” Protocols that launch hooks can capture both, he says.

“If Uniswap’s allowing all of these liquidity pool launchers to do that, then maybe they aren’t that concerned about value capture,” Kong says.

“Maybe there’s not so much need for an appchain.”


Don’t miss the next big story – join our free daily newsletter.

Tags

Upcoming Events

MON - WED, MARCH 18 - 20, 2024

Digital Asset Summit (DAS) is returning March 2024. What you can expect: And more! Don’t miss out on the opportunity to be in the room when the future of crypto is decided. Join us and help shape the future of our […]

recent research

Research report - cover graphics-2.jpg

Research

Base has doubled-down on its commitment to the Superchain vision, has shown early signs of success with nearly $400M in TVL, and has become home to novel dapps such as friend.tech which has seen significant traction.

article-image

The bitcoin halving slated for April 2024 — an event expected to spur upward price action for BTC — could be a boon for Block’s stock price, analysts say

article-image

Seed Club founder Jess Sloss is excited to “open the doors and let other people see what we’ve been seeing for the last few months”

article-image

Blockchain is a “natural fit” in games based on open economies and user-generated content, says Wyatt

article-image

Their current stance is a half-baked attempt that could stifle innovation and burden an emerging industry

article-image

Maker’s DeFi-focused “subDAO” passed a proposal activating a lending market for DAI on the Gnosis Chain

article-image

Certain creditors could be repaid sooner, with one hedge fund exec telling Blockworks it expects a payout by the end of the year