V3 LP lost about 100 million dollars. What did the post that issued a warning to Uniswap say?

Written by: Alex

Compiled by: Planet Daily Katie

Originally, I just created a Dune dashboard about Uniswap, but it caused a stir in the DeFi circle. Disturbingly, it revealed the true nature of those who consider themselves the inventors of the "financial perpetual motion machine." This is a story about charts, cookie data, arrogance, social proof, and the future of DeFi.

Last month, I analyzed the "order flow toxicity" of the Uniswap V3 ETH/USDC pool. Uniswap V3 LPs on ETH/USDC are estimated to have lost $100 million.

"Order flow toxicity" has caught people's attention. However, to clarify: when you are an LP, you are betting on how a trading pair performs; this bet is unrelated to whether your trading pool has "toxic order flow."

After deducting the fees from its original LP holdings, the conclusion is shown in Figure 1:

In summary, LPs in AMMs profit when fees > impermanent loss (IL), and lose when fees < impermanent loss. The chart shows that this year, LP fees are about $100 million lower than IL.

Further Interpretation of Figure 1

Figure 1 measures the "markout" of each transaction in the Uni V3 ETH/USDC pool, which is the unrealized profit and loss amount (measuring profit) from trades using future prices.

For example, a 5-minute mark means the unrealized profit and loss 5 minutes after the trade occurs.

This is a common metric used by HFT market makers in traditional finance. It measures the cost-effectiveness of executing trades over multiple time frames. "Markout" indicates our realized profit and loss, and accurately finding each LP and trading method can be cumbersome.

Unrealized profit and loss for LPs after 5 minutes: -$21 million

Unrealized profit and loss for LPs after 1 hour: $56 million

Unrealized profit and loss for LPs after 1 day: -$97 million

Unrealized profit and loss for LPs after 7 days: -$92 million

@0xShitTrader's interpretation of this chart is that due to the massive losses, retail investors should not participate in the passive liquidity provided on CPAMM.

I personally hold a neutral stance on this view. The LP "markout" for ETH/USDC has recently dropped significantly.

Uniswap Team's Rebuttal and Confrontation with Analysts

@teoleibowitz, @xin_wan, and @AustinAdams10 from Uniswap's Risk and Research department sent a strongly worded post claiming that I was accusing Uniswap based on charts and ignoring "cookie" data in my analysis, asserting that my analysis was wrong in every aspect.

The Uniswap team claimed that I did not account for fees in my analysis, and that the Uniswap ETH/USDC pool has actually made a profit of $150 million since its inception. The discrepancy is so large.

@0xShitTrader discovered an error in Uniswap's query that led to the exclusion of all LP buys, exceeding half of all LP trades.

After correcting the error, their analysis matched the original chart exactly, showing that LPs lost nearly $100 million within a day.

This issue was immediately submitted to their team. More than 5 days have passed, and they have yet to retract their statement, asking me to clarify the truth. For me, it is important to share the real state of the DeFi world. The Uniswap team believes that providing passive liquidity in the ETH/USDC pool to achieve a profit of $150 million is reasonable, which shocks me.

The Uniswap team's bias is evident. They believe that the traditional financial market's principles do not apply to them. They think they have invented a "financial perpetual motion machine," a "money printer" that does not require alpha generation. This misinformation and lack of truth from Uniswap spreads like a virus among KOLs in the DeFi community, who trust the Uniswap brand but have not deeply researched the data themselves.

The Current State of the DeFi World

In the ETH/USDC pool, funds are over-allocated to provide liquidity. This is not a personal attack on AMMs or the Uniswap team, but rather a reflection of the reality. DeFi is in a survival crisis, and as a community, we need to honestly face the achievements we have made.

AMMs are excellent tools for stablecoin trading and enhancing the liquidity of long-tail assets. The challenge of combating CeFi technology is still a problem we are working to solve as a community. There is too much on-chain capital seeking yield, leading to almost every opportunity generating negative risk premiums that Uniswap pools cannot bear.

There are over $70 billion in stablecoins on ETH looking for use cases. This type of capital lacks sufficient use cases, especially in a macro environment where risk-free yields exceed 4%.

Most people have yet to realize that DeFi is like a confused teenager struggling with its identity. We are chased by capital, and most DeFi communities take this for granted. DeFi is racing against time, trying to convince capital to stay. Innovation, creativity, and truly productive use cases are essential for the ecosystem's survival. We cannot rest on our laurels, as DeFi is far from reaching a sustainable endpoint.

A good friend of mine recently talked to me about the difference between precision and accuracy, which I believe is at the root of DeFi's existing problems. Precision is the ability to hit a target. Accuracy is ensuring that you are aiming at the right target.

What Problems Does DeFi Actually Want to Solve?

In the last cycle, the world needed a growth narrative (also known as an unregulated casino) to inject historic liquidity. As a community, we need to abandon the promises of "financial alchemy" and "financial perpetual motion machines" from the last cycle and focus on the sources of long-term sustainable innovation that DeFi can truly address.

I hope this serves as a wake-up call for builders in the crypto space. Many of us have been fortunate to accumulate capital and build projects during the bear market. Let’s ensure that our goals are correct, as we have a responsibility to make the world a better place.