Dialogue with Uniswap Founder: Beyond Aggregators, UniswapX is a More Free Competitive Market

Interview: B ankless

Guest: Hayden Adams, Founder and CEO of Uniswap

Compiled by: Qianwen, ChainCatcher

Video link: https://www.youtube.com/watch?app=desktop\&v=BNePCzCu23M

Leave Routing Issues to the Market

Host: Uniswap is cool because each token has its own exchange and its own pool, and this is true for V2, V3, and V4. I call this path "hook-centric roadmap," which aligns with Ethereum's rollup-centric roadmap. Ethereum is doing this to minimize complexity as much as possible, letting rollups handle all the execution work.

Uniswap's hooks are doing something similar—empowering Uniswap's pool builders to construct in a highly expressive way. The issue now is that, despite the reduced complexity, problems still exist, such as the numerous different types of pools. So, can we say that UniswapX is a solution that leverages all this complexity?

Hayden Adams: We are discussing this in the context of the protocol, which is highly decentralized. What we aim to do is solve the routing problem, commonly referred to as AMM. Currently, swapping, routing, and liquidity provision are bundled together, trying to find the best price in the process. But I think they can be slightly decoupled. Because we now have various strategies, different routing methods, and various aggregators.

So, Uniswap X is a competitive routing market that achieves higher efficiency through decentralization, allowing more people to participate in finding the best routes and discovering the best liquidity pools. In the long run, users will get better prices.

Host: The coolest part about Uniswap is that you can list any token. I think the routing problem—finding the best price for your trades from the liquidity sources of token pools—is actually a computational problem. My understanding is that through UniswapX, you want to leave routing to the market rather than having the Uniswap router manage all this complexity to ensure traders and swappers get the best liquidity and the best quotes, right?

Hayden Adams: Yes, we are not only solving complexity issues but also addressing other problems, such as gas fees, validators, MEV, etc. For instance, by competing in auctions, it encourages people to seek out the most complex strategies, provide better price improvements, save on gas costs, and so on.

Uniswap X uses off-chain signatures, where users do not sign transactions sent directly to the chain but sign off-chain signatures that express their intent. Then people compete, and as long as the price reaches a certain level, someone will be willing to submit it to the chain. These submitters (fillers) are similar to today's block builders, as well as trading firms and arbitrageurs. Other benefits of off-chain signatures include that if your transaction fails, it will never be submitted. It can also extract gas fees for users.

Uniswap X is a Competitive Market

Hayden Adams: Traditional DEX aggregators consolidate liquidity sources, covering as much liquidity as possible, manually finding the best prices, and the solutions provided by these aggregators are singular. But rather than being aggregators, we are more like a market where everyone can compete with various solutions.

The current user experience is whether your order is included purely based on the gas price curve rather than the asset price curve. But our solution is to combine them. By combining gas auctions (if included) and price options, we optimize your price. In contrast, the past situation was not as efficient; for example, your trade would wait until gas prices dropped significantly, but during that time, the token you sold might also be declining, so you would need to pay a bit more gas.

Off-Chain Orders Enhance User Experience

Host: In the past, I broadcast a trade, and the gas fee I paid was hardcoded into that trade, unrelated to the trade I was conducting, so these were two different, completely disconnected variables. The result might not be optimal; for instance, while I was trying to save two dollars on gas, the token price dropped.

Hayden Adams: Now, this off-chain order refers to signing a transaction off-chain but not broadcasting it, waiting for submitters (fillers) and takers to execute it. They perform a comprehensive calculation between optimizing gas fees and optimizing the actual swap, using this complexity to generate the best results. The complexity issue is left off-chain and assigned to off-chain service providers that can manage complexity.

In this way, we solve the current non-optimal situation. For example, block builders are not incentivized to provide the most money to users; they aim to make the most money for themselves, which often goes to Ethereum holders through efficient MEV auctions. We still want to return those profits to users. Off-chain orders also make cross-chain swaps possible. Starting July 17, users can choose to join the beta version on the user interface, currently only available for a small number of tokens. But in the long run, we can truly achieve cross-chain functionality, allowing you to sign orders and provide a better user experience.

AMM can serve as a way to create liquidity, building on liquidity and on-chain integration. But in the long run, this solution is not entirely feasible because we need to consider factors like MEV. We now have multiple routing solutions, such as client-side routing, as well as smarter routing that is faster and can discover more routes, all using open-source APIs. I would view the latter as a protocol in this field rather than a protocol like AMM. So, these routing solutions already exist, and we are more about updating them as a protocol. We also have on-chain smart contracts to settle orders, which are immutable and open-source (based on GPL). The path is like this: first, the front end broadcasts orders, then the submitters need to discover these broadcasted orders and submit them directly to the smart contract.

We now have exchangers and liquidity providers, while Uniswap brings submitters (fillers) to the forefront. They have always existed; we are just giving them more attention and constraints. You can think of them as those using cutting-edge trading strategies, engaging in significant arbitrage, block builders, and MEV extractors, and what we want to do is impose constraints on them, allowing them to compete with each other and return value to the exchangers.

Host: People who previously traded on Uniswap will now be directed to UniswapX, so the future is trading on UniswapX, right?

Hayden Adams: More accurately, over time, there may be more trading volume flowing to UniswapX, and users can choose to use UniswapX. But if there are better pricing methods and better resources, then people will definitely choose them.

Uniswap is Committed to Building a Better Ecosystem

Hayden Adams: The significance of Uniswap lies in promoting the development of the Uniswap ecosystem, allowing it to go beyond the strict definition of AMM. But I want to say that routing through AMM is still a good approach.

Returning to the hook issue, many people may be concerned that I created a hook, but people might worry that it is not secure, etc. So how can we ensure that people will discover my liquidity?

The solution is that if someone creates a new custom pool and a new custom hook, they do not need the Uniswap Labs team to review their hook and integrate it into our front end. Because there can be so many hooks, we cannot do that. Instead, what they need is to find a submitter (filler) willing to integrate your hook, and once they find one, the liquidity they represent will immediately re-enter the Uniswap user interface.

How Does Uniswap X Work?

Hayden Adams: Starting from the front end, the experience for the exchanger remains basically unchanged: selecting tokens and swapping. The first major difference is that you will find your swap has no**** *gas*. But I want to clarify that each token still has an initial approved permission contract, based on which you can sign. Every once in a while, you need to perform an approval transaction for new tokens you haven't traded yet, which incurs gas fees, and there is no way to avoid this unless the token itself includes a no-gas signature or you are using a smart contract wallet.

Then, you proceed with the swap without paying gas fees. You sign the signature, and the order enters processing. The difference is that when you sign a transaction, you can immediately go to Etherscan and start waiting. This is just an off-chain signature, so the order has not yet been executed; it is not even in the memory pool but in the pre-memory pool.

At this point, starting from the front end, the order will be broadcast to the submitter network. Essentially, this process is like a Dutch auction; you set a starting price higher than your expected price, and then this price gradually decreases. Once someone is interested, it creates competition, theoretically leading to the best outcome.

If the submitter submits the transaction, it means they will pay gas, and then they will withdraw your tokens from your wallet. Because you have already approved this process, and there is also a smart contract enforcing that they can only withdraw tokens from your wallet if they send the specified tokens. So it acts like a timestamp component.

Some may be concerned about transaction delays; I personally believe that auctions must be fast. So we provide an optional component that allows you to add an RFQ. This essentially means you use an RFQ pricing system, and when you parameterize the auction, you don't have to guess; instead, you directly ask others for their best price. To incentivize people to give you the best quotes, you must offer them some reward. For example, in the smart contract, if you use the optional RFQ parameterization, the RFQ winner will have a slight priority in the initial few blocks.

For instance, if I signed an order, and someone can offer a better price, they can fill in their quote, so there is still an element of public auction. This way, you can achieve very efficient and rapid price discovery. If using RFQ, it may only take one or two blocks; otherwise, it could take five to ten. This component is optional, and if users feel they can wait a minute or two, they can choose not to use it, which is very flexible. It just means that if you are willing to wait, you may need to bear some price risk, such as significant price fluctuations during that period.

How Does Uniswap Change MEV Attacks?

Hayden Adams: What we want to do is let value flow through the MEV market to block builders and validators. When someone trades, it is actually publicly broadcasted, just like it is now. Users trading on Uniswap are competing with each other, but their competition is not to provide the best price for users; instead, it is to extract the maximum value from Uniswap swaps from users, which is the current MEV market and the current block building network.

Can we change how transactions are encoded? Instead of letting a group of smart people rush to extract value from the exchangers, why not let them compete to extract as much value as possible? Some value will always go to Ethereum miners, validators, and block builders, but how can we maximize the percentage of MEV that returns to the exchangers?

They compete with each other, taking all the money. Now, we want them to continue competing, allowing most of the value to return to the traders. So, this relates to how you encode transactions; auctions can be one optional way.

Currently, as long as I can trade with the lowest slippage tolerance, validators can front-run the transaction, achieving the lowest slippage tolerance and taking that money. Through auctions, prices decay over time, and as long as someone thinks including this transaction is profitable, they will submit the auction before the tolerance hits bottom, and at that point, the order has already made a profit. This way, you won't be front-run on the transaction target as before. This system can ensure that someone completes the order as soon as the first profitable opportunity arises, which itself is an MEV protection mechanism.

For example, if you have a bunch of transactions off-chain, then a submitter can discover all the transactions and complete them simultaneously—this means they will submit orders early in the entire cycle. In price auctions, the earlier you auction, the higher the price, and the less value leaks.

Cross-Chain Transactions

Orders are represented as off-chain signatures, meaning you do not need to sign an order specifying that you want to swap token A for token B; instead, you sign an order specifying swapping token A on Ethereum for token B on Optimistic. From the exchanger's perspective, the user experience is entirely the same, and the user experience can actually feel very fast. The submitter will handle the complexities and delays of using cross-chain bridges and figure out settlements, etc.

Other benefits include that it allows for native asset swaps. When people move funds between chains and conduct cross-chain transactions, what you typically do is bridge the assets. Then, you have a bridged token of that asset on another chain, and the funds passively exist in the cross-chain bridge, and we have seen many cross-chain bridge hacks occur.

With UniswapX, users first express their intent to swap, then conduct a descending price auction. Once a submitter has a price they are willing to accept, they will initiate the transaction, which is completed on the input chain. They transfer the user's input into a custody contract and are responsible for sending those tokens to the output chain. Afterward, they must prove they have done so to request the user to input tokens on the input chain. This proof can be optimistic proof, meaning it directly assumes they did so without needing to prove it, making cross-chain swaps very fast. Alternatively, if someone questions whether the submitter actually transferred the tokens, there will be a seven-day asset lock period during which the submitter must provide proof.

Off-Chain Signed Orders Not Only Solve Pool Complexity Issues But Also Solve Bridging Complexity Issues. Complexity Is Managed by the Same Service Providers and Submitters. They can manage time and delays, complexity. All of this seems to be determined by the free market and the submitters, and this process is also overseen by smart contracts to ensure that submitters provide exchangers with what they need.

I believe that in the future, most assets will exist on their origin chains, or on their most secure chains, or on their most typical asset chains, rather than on bridges. That is, if submitters conduct cross-chain swaps, they will obtain tokens on the native chain of the tokens. This way, the use of bridges seems to be truly minimized; rather than viewing cross-chain bridges as asset bridges, in this model, cross-chain bridges are merely used to relay the final information. You don't even need that data packet unless the submitter is lying.

This can be called minimal viable bridging, where users only bear bridging risks when transactions cross the bridge. Once the exchanger has received the output tokens, and the submitter has received the input tokens, neither party will have bridging risks anymore unless those tokens happen to be wrapped bridged assets, but they do not need to be.

Thus, we minimize the extent to which people need to bridge while also abstracting them, such as this system can support any possible bridging. You can think of it as a bridge aggregator, where submitters can use any bridge, but each transaction has a specific cross-chain bridge, which is the "settlement oracle." It can be any bridge or any other system; you can also use multi-signature systems, governance systems, or unilateral systems, or trust the submitter.

Leveraging Complexity

Hayden Adams: I think this should be a pivotal moment, representing the forefront development of the Uniswap ecosystem. People are looking forward to using decentralized markets, but there are still areas that need improvement; user experience still needs refinement, such as inefficiencies and insufficient liquidity.

In the long run, decentralized markets will actually be stronger, more powerful, and provide better user experiences, with market structures being more efficient, handling some things based on market principles rather than operating like a single company.

With this mindset, leveraging the new skills we have learned in blockchain and cryptocurrency, I feel we can open the first chapter of the story. We want to build the ultimate centralized order flow network, and we also hope to collaborate with other teams to solve these issues, as other teams are also exploring how to decentralize order flow. Overall, I believe this is a very important moment for the entire industry.

In terms of trading volume and user numbers, among all the gas on Ethereum, perhaps over 30% comes from Uniswap trades, and I can guarantee that from the perspective of MEV, the proportion will be even higher. I believe our work in this field is very important and contributes to the advancement of this industry, and we have users from whom we can learn, optimize, and improve the actual trading experience.

On July 17, UniswapX launched its mainnet test version, which is just an early version, open only to a limited number of tokens and trades. During the trial, you will see features like no gas fees, signatures instead of transactions, and so on. This is a gradual release process. There are still many issues to consider, such as parameterization and how long it will take to start integrating cross-chain functionality, etc.