Matthew Harcourt, an analyst with Australia’s leading cryptocurrency investment firm, Apollo Capital, shares the fund’s weekly take on what’s happening in the fast-changing and volatile cryptocurrency space.
The world’s biggest decentralised cryptocurrency exchange should soon become cheaper and faster, and the Ethereum mainnet somewhat less clogged and expensive.
Uniswap is the leading decentralised finance project in the cryptocurrency space, a smart contract on Ethereum that lets users conduct token swaps against a pool of locked liquidity. Compared to traditional exchanges, it is considered revolutionary, in part because Uniswap eliminates the middleman traditionally necessary for such swaps. With Uniswap, everything is handled by an algorithm and smart contracts.
On Friday, as “layer 2” Ethereum scaling solution Arbitrum opened its mainnet to developers, Uniswap tokenholders voted to deploy the exchange onto the platform. Arbitrum is one of many different options being developed to scale Ethereum, which has become bogged down and expensive, a victim of its own popularity.
The @Uniswap community has spoken with overwhelming support in favor of an Arbitrum deployment of Uniswap v3! So far:
0 UNI https://t.co/esdxa2HIIC
— Hayden Adams 🦄 (@haydenzadams) May 26, 2021
“Arbitrum is a layer-two scaling solution that will inherit the security of layer one Ethereum,” Hartcourt explains.
“It’s a little different from layer two solutions like Polygon; because Polygon is a side chain – it acts a little differently and Polygon uses its own security to uphold the network, it uses its own nodes.
“Arbitrum is a little different, it is probably more secure, because it inherits the security of layer one Ethereum.”
In technical language, Arbitrum is an Ethereum scaling solution known as an “optimistic rollup”. There’s another type of rollup known as a ZK-SNARK rollup, which uses zero-knowledge proofs. There are tradeoffs with each.
Another optimistic rollup, Optimism, has been teasing for a launch for several months now, with Synthetix as its main protocol on the platform.
“Uni were committed to launching on Optimism once that was rolling out, but that’s been pushed back a little bit, so the Uniswap community has been looking into other solutions,” Harcourt said.
The move to Arbitrum will make Uniswap cheaper and a lot faster, as well as declog layer 1 Ethereum, Harcourt said.
According to Etherscan, Uniswap version 2 was the top “gas guzzler” on Ethereum in the past 24 hours on Friday, using 20.4 per cent of all Ethereum “gas” — 754 Ether, or $2.5 million worth. Uniswap version 3 had used another 2.9 per cent of all gas, or 109 Ether.
The Apollo team thinks it might take a month or more for Uniswap to deploy on Arbitrum, Harcourt said.
“But that’s really going to be a booster for the Uni token and the Uniswap total value lock. That’s an interesting development to watch. And it’ll be interesting to see if other defi protocols also adopt Arbitrum, which is probably the leading new layer two solution.”
There’s no token associated with Arbitrum, although there might be for Optimistic once it launches.
“It’s more of just a technology, than a token,” Harcourt said.
The Arbitrum mainnet opened to developers on Friday.
Uniswap’s UNI token — the No. 10 cryptocurrency — is one of Apollo’s two coins to watch this week, although Harcourt cautioned that there are questions how long the deployment will take and whether Arbitrum might have issues on launch.
On Friday, Uniswap’s website indicated it had handled US$1 billion in transactions in the past 24 hours, with US$1.5 billion in total value locked (TVL) in the protocol.
Perpetual Protocol (PERP)
Apollo’s other coin to watch this week is Perpetual Protocol (PERP), the No. 248 cryptocurrency, with a total market capitalisation of US$237 million.
Perpetual is a decentralised derivatives exchange, allowing traders to open positions with leverage of up to 10x. Positions are liquidated if they reach leverage of 16x.
“We think that on-chain derivatives and decentralised derivatives will be a major market opportunity,” Harcourt said.
There’s a lot of trading of futures contracts on centralised exchanges like FTX and Binance, he noted.
“We think that the first defi product, derivatives protocols that are able to capture that market will be really valuable – and we think the leaders in this space is Perpetual Protocol.”
PERP has had the most market share for months, he said.
The PERP token can also be staked, with tokenholders receiving rewards from trading fees.
“So it has that cash flow in the token, which is obviously very attractive. And I believe there’s inflationary rewards for that one as well.”
Perpetual Protocol is on xDai, a sidechain to Ethereum similar to Polygon.
“They made it really easy to use, and obviously it’s really fast, low or no transaction fees, and you can access leverage, and they have 14 different assets – Bitcoin, Ethereum, DOT, Curve, Cream, Maker, Link, Sushi … you name it, they’ve got 14 of the biggest and a massive amount of trading volume and a massive amount of fees flowing to Perp token holders, so we think that’s one’s really attractive for the long term.”
The views, information, or opinions expressed in the interview in this article are solely those of the interviewee and do not represent the views of Stockhead.Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.