UniswapX Revealed: A Game-Changer for DeFi

When I think about decentralized finance and like what we're trying to achieve, right, we can't just kind of like iterate in our like small world. Like we have to like kind of innovate and push beyond it. I'm extremely bullish AMMs of like a market structure, but I think that there are also other market structures that like could, you know, exist in the future. And then I think we also want to discover them and have them be part of the Uniswap ecosystem.

Bienvenue à Bankless! Bankless Nation, it is that time of year again. ETHCC, the Ethereum Community Conference in Paris, France. All the teams, all the projects, all the protocols save some of their biggest announcements for ETHCC, except for the ones saving it for permissionless, of course. You might remember last year, ETHCC was marked by the time in which three teams all had the first ZK EVM. Yeah, that was that was a year ago at ECC. And today, the day I'm recording this, Sunday, the day before ETHCC begins, we already have a massive release out of Uniswap Labs. A brand new protocol called Uniswap X. A new half of Uniswap that complements the rest of the Uniswap protocol, the yin to the yang of Uniswap's V1 through 4. Something brand new that fills in the picture of the Uniswap project. Seriously, the the best way to describe this is that it's the other half of Uniswap.

It's the half of Uniswap that is meant to make Uniswap the best place for swappers to swap tokens. Today on the show we have Hayden Adams, the day before he gives his ETHCC main stage talk, releasing Uniswap X into the Wild.

What is Uniswap X? I'm glad you asked. Uniswap X is a protocol for competitive order execution in DeFi.

It is a protocol that exists on top of Uniswaps 1 through 4, as well as all the other liquidity sources in DeFi, that ensures that the market produces the best possible order execution for anyone looking to swap tokens using Uniswap X.

The idea behind Uniswap X is that it maximally protects swappers ahead of MEV extractors, ahead of arbitragers, ahead of frontrunners, to ensure that the average Joe, who just wants to swap some tokens, gets the best possible adeal that the market will allow for.

In this episode we hit with Hayden, we go under the hood of Uniswap X, what it is, how it works, and why it's needed. So you'll learn about Uniswap X and how it uses a Dutch auction to maximize swapper returns. How this Dutch auction mechanism also ensures that MEV is maximally retained by swappers. Also, how Uniswap X massively reduces bridge risk and almost entirely abstracts away bridging altogether, freeing up capital to not have to be stuck inside of bridges where it's vulnerable. And also how Uniswap X formalizes a new kind of player in the game of making trading in DeFi maximally efficient. As a disclosure, of course, Uniswap is a sponsor of Bankless, and Bankless also does hold some uni tokens, which you can see all the details of as well as all of our other disclosures at bankless.com slash disclosures. So let's go and get talking to Hayden Adams all about this new Uniswap X protocol. But first we're going to talk about our preferred centralized exchange for crypto in 2023, Kraken, because you gotta get your fiat boomer bucks into the world of crypto somehow. So use Kraken, again, our preferred exchange in 2023. If you do not have an account with Kraken, consider clicking the link in the show notes to sign up with one today. Bonjour Bankless Nation. It is the Sunday before ETHCC, and I'm here with Hayden Adams, who has yet another announcement out of the Uniswap ecosystem. Hayden, what's going on, man? How are you doing?

Bonjour, great to be here. First time in Paris and first time at ECC. But yeah, you know, Uniswap, we are keep keep cranking out the hits. Been pretty busy, hard at work. And you know, most recently we announced Uniswap V4, which is a new version of the Uniswap protocol, and you know, being currently being built in public. And it you know basically it makes it easier for you know people to create customized liquidity pools. We talked about this last time, hooks, and you know, what you start to see is uh there's this thing called the routing problem. And you know, the as AMMs um you know get more uh flexible and uh basically what happens is routing gets harder over time. And routing was already actually pretty hard. So today we have hundreds of thousands of tokens, we have four versions of the protocol, we have multiple chains, uh, we have you know other liquidity sources. And then you also start to think about things like MEV and you know trade offs between slippage and latency and you know best execution. And it starts to get really complicated. And definitely the you know with Uniswap v4 uh and hooks, it actually gets even one step more complicated.

Right.

And you know, traditionally today we we've had a we have a our current like open source, we call it the auto router, which optimizes routing across Uniswap V4, uh V3, V2. Um

and you know, what we've been working on today, I guess a long build-up, is what we call Uniswap X, which is a Dutch auction-based protocol for routing uh and and aggregating liquidity. And you know, we we think it's really powerful and we think it will help provide it it basically, you know, one you know, improves prices, but also has a bunch of UX benefits, uh, allows for gas free trading, uh, you know, no slippage on failed transactions, uh, it starts to internalize uh you know some MEV uh and provides a bunch of other cool features. Uh I don't know if maybe I should I don't know if I say the the the next the other big one. Um

Well we'll get to every single bit here. And and for the bankless listeners out there that aren't familiar, ETH CC is the place where you announce things. This is where announcements come to be. And uh like I said, this is the Sunday before, so we're gonna be uh uh seeing a slew of announcements coming out, and we're getting the first one here with Uniswap X, which is this new thing. This is the thing that that Uniswap is announcing, this thing called Uniswap X. But I want to actually set more of the stage, and you you did a good job, but I want to make sure that we are talking about the problem being addressed here. Uniswap is cool because every single token gets its own exchange, it gets it gets its own pool. Same thing with Uniswap V2, V3 made it even more complex, if you will, with this concentrated liquidity. And then when we had you on not too long ago, like four weeks ago or something, about Uniswap v4, that whole thing of Uniswap v4 was even more expressivity in Uniswap pools, more complexity. And the really the big takeaway, I called it Uniswap's uh hook-centric roadmap to go in parallel with Ethereum's roll-up-centric roadmap, where Ethereum's doing this thing where it's pushing complexity to the edges. It's like, hey, roll-ups, you do all the execution stuff, and we will just settle. And Uniswap's kind of doing something similar with its hooks and Uniswap v4. It's, hey, there's a world of expressivity and features and different ways of constructing a pool that we want to enable Uniswap pool builders, AMMs, to be able to build. And what you're what you're I think you're leading up to is like, that's all the great. We have as much expressivity as we need in Uniswap pools, except we're still left with a bunch of complexity. Even though it's been pushed to the margins, and Uniswap as a base is simple, the complexity still exists. There's so many pools. Now pools are different, they're different standards of pools, and so Uniswap X is a solution to harness all of that complexity, would you say?

Yeah, and I and I'd say also, you know, when I was on last time, we talked about different ways of achieving decentralization. And, you know, there's like the the most pure form of decentralization is like automation. Um, and you should automate what you can automate and with with immutable smart contracts. And then uh the next level of of you know achieving decentralization, and we talk about this more in the lens of governance, but the next level is just like incentivization and then in markets. And if you have like a competitive market structure uh where people are incentivized to do what they should do, then that's like more decentralized than something that needs to be governed, uh, which is like the third tier. And for that, you achieve that through just like greater distribution of governance rights. Right. Um and so what we're talking about here is taking uh you know the routing, like we've done we've already talked about this in the context of the protocol, uh, which is highly decentralized, and what we're trying to do is uh you know do that for the routing problem, uh, which is you know, you you could it's people t uh tend to think about like um AMMs as

You know, both like routing, like both swapping and routing as well as liquidity provision all you know bundled together.

Routing, swapping, and liquidity provision.

Yeah. How do you route the swaps through liquidity? But people think of it as like, okay, you have the AMM and you try to find the best price through it. But I think um you know you you can start to unbundle them a bit, right? Because like you know, today most interfaces have like different strategies for how they route uh through pools, right? And you know, there's there's various aggregators and they're they're trying to like you know find every possible liquidity source. Um

You know, there's there's the Uniswap UI which today basically just like has like, you know, trends discover across Uniswap pools. Um

And you know what we're trying to do here with Uniswap X is create a competitive marketplace for routing. It's almost a way of decentralizing achieving more efficiency through decentralization. The more people that can participate in finding the best routes, discovering the best routes, discovering the best pools, the better, discovering all the different liquidity, the better prices you can get in the long run. If you can create a competitive marketplace.

Creating a competitive marketplace for routing. So with this explosion like Uniswap, even at you know its earliest days in V1 was an explosion of pools. The cool thing about Uniswap is you can list any token. And that only got furthered with Uniswap V2, V3, and V4. Now we have pools all over the place. And so the routing problem, maybe to define the routing problem, is that with all of these pools and all these different sources of liquidity, getting the best price for your trade is a computational problem because there's so many pools out there. And so what I think what you're trying to do with Uniswap X, a marketplace for competitive order routing, is you're just giving that up to the market and saying, hey, market, instead of this one, instead of the Uniswap router being the thing that manages all of that complexity, you're just giving it up to the marketplace and allowing uh routers to come in and service that role to make sure that traders and swappers get the best uh liquidity, get the best offer.

Yes, and and I think the thing I'd add to that is that because we're you know doing this on a blockchain, it starts to touch on a bunch of other problems in complexity, right? We have like, you know, like you could you could do this in TradFi, but like or like you could you could think if you thought think about purely in TradFi terms and it's like just like optimizing you know routes, but we also deal with things like gas, and then we deal with things like the fact that you know uh validators exist and they get to you know choose the order of transactions within a given block, and right and that starts to take us into you know what what people call, I guess I didn't r I only found out recently that it was rebranded from minor extractable value to maximal extractable value. But then you know it takes you into like MEV territory, uh you know, gas, gas optimizations and and latency and there's all these other things as well. Um another thing is that like there's also you know uh another t area of like price improvement is you know batching. People talk about batching all the time. Like if people are trading in the same direction at the same time, if you just like route it through a Uniswap pool in the back of the Uniswap pool, right, then like that's less optimal than like netting it all together. Um

So by creating like a kind of a competitive marketplace for it where people are competing in an auction, it basically forces people to find the most sophisticated strategies that that you know offer the most price improvement. And so sometimes it might mean like multi executing multiple transactions at the same time. And in that way, like you know, you're saving some gas costs and you're also uh maybe internalizing some of the price improvement um to to for swappers. Um but yeah, I mean look look, the real goal is to like you know deliver value to users at the end of the day. And so um uh and then the other thing I'll mention is that like again, because we're on blockchains, there's a bunch of like UX implic implications of um

You know, like uh just like gas, right? So with Uniswap X uh orders are off-chain signatures that are then, you know, so you rather than like signing transactions that are sent directly to the chain, users sign off-chain signatures that ex you know express their intent as as is a word of the moment in in crypto. Um and and that is you know sort of a an auction of you know a price decaying auction. And then people are competing, you know, as soon as the price hits a point where people are willing to fill it, you know, they the the fillers, a new class participant, are submitting it to the chain. And those fillers look you know similar to the block builders of today, um, and you know, likely will be a lot of the uh uh of of overlap, or or similar to like the trading firms and arbitragers. Um

And uh because orders just start off as you know off-chain signatures, you also get benefits like if if your transaction is going to fail, it never gets submitted. Um and also just like being able to abstract away gas for users. So if I want to swap you know USDC for DIE, I don't want to think about like ETH uh as an input. Um right today when you swap USDs for a DAI, your ETH balance goes down a little bit. Um here, you know, with Uniswap X, you just sign a message, someone else pays the ETH, and that's reflected in the price that you get. Um so there's a bunch of other benefits as well. But yeah, there is the first thing you said as well.

Yeah, yeah. So there's there's a lot of things under the hood there that I want to unpack, like the gas, the MEV, all of that kind of stuff. But really just to start at the very, very top, how is this different? And just to make sure that we're we're setting the table appropriately, how is this different from like a DEX aggregator or some of the other liquidity optimizer services that are out there? Like uh if we take a peek under the hood, like what what how should people think about this in in its new form?

Yeah, I say that like, you know, for most DEX aggregators and photos where there is prior work and there's other like teams that are attempting to do things that like are are categorically similar. Um but like in terms of like the traditional model for um for a DEX aggregator, uh, you know, what people are doing is just like in like you have like a single team that is like integrating liquidity sources one by one.

Right.

And you know, in in in doing that, like you're you're hoping to get as much liquidity coverage as possible. That was like the kind of traditional DEX aggregator. There's definitely like you know various experiments, you know, like like Caswapp infusion and stuff that like get into closer territory to what we're we're doing with Uniswap X. Um But here, you know, rather than like trying to like manually find all the liquidity sources, here uh we're basically saying anyone can do that and they're competing against each other. Um and so it's it's it's a marketplace. Um, it's a little bit more.

So a dex aggregator.

That was a name on the there there was a Uniswap meta was was one name we considered, but naming things is hard. Uh yeah, and and I think meta kind of I can't I think meta kind of ruined.

Meta is now taken. That box has been checked, sadly. So okay, so a DEX aggregator provides a singular solution to getting the best liquidity. And that is their solution. And what you're saying is in order to improve that product, the teams behind every DEX aggregator needs to serially, manually, one by one, integrate with liquidity pools and in order to prove the improve their product. And what you're saying is Uniswap X is not that. It is actually a place for all of those solutions to compete in the marketplace. Yeah. And maybe at this point, complexity around Uniswap is so large that knowing the the correct way of producing the best outcome is perhaps impossible, which is why you need to leave it up to the free market.

Yeah, uh that that's definitely it. And there's also like other liquidity sources that can start to be integrated um there as well. Uh I I'd also add that like signed off chain order based auctions are like a really powerful primitive.

Let's let's dive down into that. So like the current if I go to Uniswap, I sign a transaction, I broadcast it to Ethereum, in twelve to twenty four seconds, it gets included in the blockchain. That is the current Uniswap user experience that people are used to. With Uniswap X we have this new thing. Can you unpack that a little bit?

Yeah, I think that something that's funny is that actually every order like you already have an auction happening every transaction, right? Because there's like an auction for block space. Um but people are like competing to like, you know, there's there's like um

I'd say that like one thing that's interesting is that there if you imagine there's like a price curve and then there's a gas price curve. Um and today like whether or not your order gets included is based purely on the gas price curve, not the asset price curve. And so like this combines everything. Like you just have the price curve. Like

the the nice thing is it kind of like combines like the gas and the price into a single thing. Um which which is like which is part of it. Um but yeah, like users sign off chain orders, they're broadcast and they can be broadcast in variety of ways and and

Signing off chain orders as opposed to signing a train

And people have talked about these for a long time, like meta transactions or or sponsored transactions, all these, it's like a similar category of things. But we're like bundling the gas option of getting included in a block with the price option of trying to optimize your price into the in at the same time. And so that you know, there's there's like a nice efficiency thing there. Where sometimes, for example, in the past, and it definitely things improved a lot with 1159, the EIP 1159, but sometimes in the past, for example, like, you know, the the gas, like your transaction would wait until like the gas dropped a significant amount to get included, but in that time, the token that you were selling also dropped. And so it would have been better for you to pay more gas sooner, but your transaction has no awareness of like the like there's no like, and that's where when people talk about like MEV awareness. Like you if you're if the if the you know if the fee that you're paying has no awareness of the uh of the transaction that you're doing, then you're like really not optimizing. Um and so part of this is around that. There's also just like a gas, like there's like a UX benefit. Like people don't like thinking about gas. You know, when I'm trading you know USDC for DAI, I just don't want to think about ETH. Right. And it's confusing, and that's something that confuses users a lot. I think something that maybe is makes Uniswap a little bit unique in not not totally unique, but like like somewhat unique in like how we are able to develop and design things, is we just have a lot of users and we hear a lot from them. And you know, some of how we approach solving problems is we're like, okay, like what is holding us back today? Like why why what are our users struggling with right now? And that's part of what like led to us creating a wallet. Is our users were struggling with wallet UX. And you know, it's it's part of what led to some of our design decisions here is it's like, you know, peop uh is just like, how do we how do we continue to to, you know.

push things forward.

I wanna I want to drill down on this uh off-chain order thing just a little bit more because I think it's a great um microcosm for the solutions being put forth by Uniswap X as a whole to begin with. So in this in Uniswap in its current form, like I said, I sign a transaction, I broadcast that transaction. The gas fee that I pay is hard-coded into that transaction, and that is independent from the trade that I'm that I'm making. And so these are two different variables that are not talking to each other and can produce suboptimal results because maybe the like you said, the token moves against me in the time that I tried to save $2 of gas, I lost $15 off my trade. Exactly. With signing an off-chain order, which is signing a transaction but not broadcasting it and just leaving it for somebody, a filler, a taker to take and fulfill that, they are allowed to combine the computation between optimizing for gas fees and optimizing for the actual swap. And so they take that complexity and do that computation to produce the best outcome. And because it was left off-chain, it was assigned an off-chain order, some sort of off-chain service provider, some filler who's managing this order routing and all the other complexity, they're able to manage the complexity between the gas and the swap to produce a better outcome for a user. And that's just like one piece of many pieces of combined complexity that allows for a better swapping experience.

For for sure. And I I th something I'll add is that like that might be like, oh, there's an off chain server like like what does that mean for decentralization? But just I I think it's like worth noting that like today the way it works is you it's not like it's not actually there's no like magic like user signs that go straight to the chain, right? There's like we have like mempools, we have block builders, we have like

Pure uh

We have all of these things in between. And what we're trying to do is say, like, let's optimize what's in between to like you know optimize for the best outcomes for users. Because today, like, you know, MEV, you know, block builders aren't optimizing to give users the most money, they're optimizing to take the most money for themselves. And and often and actually, you know, funny enough, a lot of that money is going to ETH holders through uh efficient MEV auctions. Um but uh so actually ETH holders are are making a lot of that profit, but we you know ultimately want to give give a lot of that value back to swappers. I know we like ETH, but um yeah. We also like UX and and and and

value value retention by by end user.

Yeah. Yeah. I I'll also mention that like, you know, I mentioned like off chain orders like signed off chain orders as like a general primitive. Like uh I I think something that's like really empowerful with Umiswap X is it actually opens up a ch uh world for like cross chain swapping as well.

Mm-hmm.

Um so you know, today what we know we're launching a a or today is uh oh it depends on when this gets

Is it

hopefully

probably on Monday?

Yeah, Monday, Monday, uh the 17th. United States time, yeah. July 17th, something like that. Um the uh you know, there's gonna be like an opt-in beta. People can sign up to to or people can like opt in in the UI to start having some pr small percentage of their orders route to this. We're we're starting small, we're we're you know, it's only for certain pairs, for certain trade sizes, et cetera. Um and and it's gonna, you know, so that we can continue to like give time for more fillers to come into the ecosystem and continue optimizing how how we parameterize the system. Um

But you know, sorry that that like today we'll have like a version that's just like on mainnet on Ethereum. Um but in the long run we can really make this cross-chain and you can sign orders that are you know the the this this method of like signed off chain orders is like a really powerful and expressive and and allows for you know really uh good user experience um and and efficient cross chain swapping as well. And so, you know, not today, but maybe like hopefully like later in this year, uh we'll see like cross-chain trading um and and that will also be really cool.

I want to try and define the landscape of what Uniswap is now. Because we have on-chain on Ethereum and the layer twos. We have Uniswaps one through four, which are AMMs. And then now we also have Uniswap X, which is an order routing protocol. It's another protocol. And so this is a new protocol. This is not an AMM. This is actually something completely new for compared to all the Uniswaps one through four. This is not a Uniswap five. This is something completely different. This is a

Well and complimentary.

Parallel and complementary. Like the pieces fit really, really well together. But I really want to kind of carve out what the definition is of Uniswap X. I'm gonna do my best and you can correct me 'cause I'm only getting so far. Uh Uniswap X is a protocol, an open ended protocol for

Service service providers, fillers, trade executors to come and fulfill the best trade according to the parameters of a swapper. So a swapper comes to Uniswap X and they say, hey, I want to do something. And Uniswap X puts that into a package that fillers can all compete on. And so it's like a protocol. What do protocols do? They bundle things in easy to manage packages of information so that other service providers, fillers, swappers, liquidity providers, whatever in the Ethereum ecosystem can all come and compete on that vector of providing that one swapper the best swap possible. And this is, again, complementary with Uniswaps one through four,

but is some completely different protocol, correct?

Yeah, I mean look, uh yeah, you you could start to think of like AMMs as ways of creating liquidity, uh, you know, building building on top of liquidity as a building block, um, right? There's like you know, on-chain integrations, uh uh and it's just so really cool, expressive, an efficient on-chain way of providing liquidity. Um But I'd say that like naive routing solutions through AMMs in the long term are not gonna make it. Like you kind of need your routing solutions to be aware of things like MEV, aware of you know, kind of more expressive in user intense. And so the the you know, you can think of this as like we already have a routing layer, we already have this thing we call the auto router. We also have this thing we call client side rout routing. So we have a vert, like in our in our web app today, you can actually toggle between two types of routing. I don't know if you know that, but like there's like client side, which basically turns off the API entirely and just speaks directly to the chain. And that's like maximally like provable and uh but then we have like the but like to make it like better for users, you kind of need to have you know uh smarter routing. And so we have this like smart auto router, you know, auto router thing we call. Uh and and that is like a little bit faster and discovers more routes, um, but there's an API behind it, but uh and it's open source. And and and so the goal, and I would think of this as like a protocol that lives in that domain, not as a protocol that lives in the like AMM. So like we already have this like the routing side of the system already exists, and we're and we're um we're just kind of like you know updating it with a new protocol. And I'll also mention that like the Uniswap X does have like there's like on chain smart contracts that settle orders, they're immutable, actually open source, real uh GPL, um GPL open source, and

Uh then there's, you know, uh wait you just have and then you have like front ends that broadcast orders, um fillers that have to like discover those broadcasted orders, um and uh yeah, and then the fillers basically can submit them directly to the smart contracts.

So I think what Uniswap X is really doing is they're um enabling a new type of player in the Uniswap arena. So we have we have swappers already. Uh most people listening to this are swappers. Some people listening to this might be liquidity providers. Yeah. And they are providing liquidity into the AMM. So we have the AMMs, which are Uniswaps one through four. We have the liquidity providers, we have the uh swappers, the trader, the traders who trade on Uniswap, and but now Uniswap X is enabling this new type of player called a filler.

Yeah, I I think it's worth noting that like they're not new. We're just have a routing system that is aware of them.