The Uniswap Decentralized Autonomous Organization (DAO) has recently passed a proposal to deploy its version 3 (V3) on Binance Smart Chain (BSC). The proposal received 50 million votes in favor and cleared the 40 million vote threshold.
The vote received opposition from only one entity, a16z, an investment company. However, even if a16z casts all its reported 41.5 million UNI tokens against the proposal, it is expected to pass.
Why is Uniswap thinking about deployment to BSC?
Given that BSC is the third-largest chain and has $5 billion in Total Value Locked (TVL), the implementation of Uni V3 on BSC is noteworthy. V3 has previously been implemented on smaller chains including Polygon, Optimism, Arbitrum, and Celo. According to the plan, deploying on BSC could possibly generate $1 billion in TVL and a significant amount of trading activity, as well as 1-2 million retail users.
Additionally, Uniswap chose to deploy on BSC because of need rather than affection for the chain. It is inevitable that Uni V3 will be cloned and deployed on BSC under a different brand name before the V3 license against forking expires on April 1st, 2023, as the risk was identified already two years ago.
Uniswap’s competition with Pancakeswap
Pancakeswap, a strong rival of Uniswap, has lately expanded to Uniswap’s domain, Ethereum, in an effort to boost revenue and attract more customers back to BSC. Aave, Compound, and Curve don’t face as many formidable rivals in their respective categories.
Many anticipated that Uniswap will make a significant announcement about version 4 (V4), rendering V3 obsolete. Although Uni V1 was released in 2018, V2 in 2020, and V3 in 2021, the release of V4 is late. Although it is unclear if V4 will launch, if it does, it is not anticipated to have a substantial short-term influence on Uniswap or Pancakeswap.
Due to its capital effectiveness and low stablecoin price variance, Uniswap might gain traction for stablecoin trading and liquidity provision. Additionally, Pancakeswap introduced StableSwap and lowered its trading commissions to 0.01%.
Risks involve in deployment
The possibility of centralization is one of the key reasons why Uniswap and other decentralized applications (dApps) like Aave, Compound, Maker, and Curve are not yet on BSC. This goes against the cryptocurrency community’s decentralization ideal. Since BSC was shut down due to a cross-chain bridge exploit last year, the centralization risk criticism is not without substance.
However, Uni V3 is too difficult for retail-driven BSC consumers to use when dealing with volatile assets. Farming is still a very common use case for BSC protocols, however, integrating the V3 NFT-type liquidity pool tokens is difficult.
Final thoughts
The DeFi business will be significantly impacted by the implementation of Uniswap V3 on BSC. Binance and BSC are the actual winners in this situation because it validates the BSC chain and establishes a standard for all DeFi protocols to follow.
Uni has a relatively low TVL compared to other chains, but its capital efficiency and minimal price deviation for stablecoins are significant advantages. We’ll have to wait and see how this deployment affects Uniswap and Pancakeswap in the short run, but it will provide us with more insight into the lobbying activities of venture capital in the DeFi area.
