All right, my name is Hayden Adams and I'm the founder at Uniswap. This talk is called Building on Uniswap. So what is this talk about? It was going to be a talk about Uniswap, but now it's the weather advisory. A hurricane is a tropical cyclone in the North Pacific and Eastern North Pacific. A typhoon is a tropical cyclone that takes place in the Northwest Pacific. Super typhoon is a category 5 hurricane. Kind of directly... There it is. All right, what is this talk about? This talk is about Uniswap. It's about what can be built on it today. It's about how we can expand its utility in Uniswap version 2, and then how we can scale Uniswap while retaining its utility.
So what is Uniswap? It's first and foremost a decentralized exchange protocol. It makes use of automated market making, it makes use of pooled and tokenized liquidity. What that means is in a traditional exchange you have buyers and sellers matched up on an order book. In Uniswap you sort of automate that whole process and then you give people a token that represents their position. It's easy to understand and use, and that's one of the most important things. So why is it needed? First, it lowers the barrier of entry to participation in finance. In Uniswap, anyone can be a market maker. This is the current distribution of market makers on Uniswap as of a few weeks ago. About 25% of people in the $2.5 million DAI pool come from users who put in less than 1%. So it basically allows you to pull together a lot of small market makers and do what used to be only a whale's game. Anyone can create and list an asset. This is super important. In Uniswap right now there's over 800 tokens, about 100 to 150 have actual usage. It's a lot easier to get listed on Uniswap than on NASDAQ or even on a centralized exchange or even on off-chain order book decentralized exchanges. Anyone can build on top of it, and this is more the topic of this talk. Part of the reason for that is it's all open source. It has an open source front end, documentation, smart contract SDK. So since I launched last November, there's been a number of projects that have started building on top of it.
So what are the use cases right now? It seems like a lot of people are using it for trading tokens on Ethereum. So trading interfaces, wallets, DEX aggregators. And then we have some people who want to use it to earn interest as a market maker. What they're doing is they're maintaining a 50/50 ratio of ETH and the ERC20 token, and then they're earning fees on trades between the two. One option you could do is you could use that liquidity as collateral, take out a loan against it, basically be able to leverage up on market making. Another option is create a liquidity source for an application you care about. Maker put in a lot of MKR, there's a lot of SPANK. The reason is tokens like SPANK have a really hard time getting listed on exchanges because they have to do with the adult industry. Some people, and this is the one that I'm more interested in, it's like integrating Uniswap directly inside of applications. So for example, you could lock up ETH and make DAI, borrow DAI for ETH, lock that up and make DAI again, and you can kind of loop through protocols to leverage out. So there's been some projects that have tried this out, like Open New Do and stuff like this. But what we really want to do is we want to improve Uniswap so that they can serve more use cases than it does today. And we're going to do that with Uniswap version 2.
Okay, so the first and one of my favorite features is a decentralized price oracle. The second is direct ERC20 to ERC20 pairs. Right now Uniswap forces all tokens to be paired with ETH, and there's a big advantage there, but there's also some versatility that you can get out of allowing arbitrary pairs. And finally, we've refactored the entire code base to make it a lot more flexible, I think more secure, and so better for the long term.
Okay, so how do these oracles work? Well, the idea of the oracle is that it provides a maximally decentralized on-chain price feed for any ERC20 token with a very clear incentive structure, very easy to reason about, like the cost of attack, how secure it is. And it could be useful for things like synthetics, lending, automated trading, stuff like that. One example use case that we're looking at is Augur needs a REP to ETH price feed for their version 2. So actually, before I get on, I'm going to maybe explain a little bit of how these oracles work. So the most meaningful price... Right now there's already projects that use Uniswap as an oracle where they try to checkpoint the price for maybe some sort of lending system or some sort of synthetic asset. But it can be front-run. Any transaction that checks the price on Uniswap, basically someone can manipulate the price right ahead of that transaction and basically mess up the oracle for relatively cheap. Especially since you could synchronously front-run it, move the price, let an oracle transaction go through, and then push the price back. So what we're going to do is we're basically going to have every transaction on Uniswap check the price, and if it's the first transaction of the block, store that price. And what we can do is we can average prices across multiple blocks so that manipulating the price on Uniswap... you might be able to manipulate it for one block, but manipulating across a thousand blocks or across an hour or a day... what we're ideally wanting to expose is allowing people to build pretty much arbitrary time-length oracles on top of Uniswap. So if you check the oracle once at the beginning of the day and once at the end of the day, you can get a perfect one-hour time-weighted average price of the price on Uniswap at the beginning of the block. The reason we do it at the beginning of the block is basically because in order to manipulate the price at the beginning of a block, you have to be the last transaction in the previous block, which means you're opening yourself up to an arbitrage in the next block. And doing that across a thousand blocks can be very expensive.
Okay, can you use the microphone? Oh, you can't hear me? Yeah, okay, thanks, sorry about that. Okay, the other feature we're working on is ERC20 to ERC20 pairs. The main idea here is to allow liquidity providers to take on a wider range of positions, also allow for lower gas and fees on direct ERC20 to ERC20 pairs for ones that have a lot of liquidity in them. Right now, when you go ERC20 to ERC20, you have to go ERC20 to ETH, ETH to ERC20. You pay 0.3% fee on both sides, and then there's slippage on both sides. This in general we think increases the protocol flexibility. So an example for the use case where this is maybe most interesting is allowing tokens to be paired against stablecoins, or even stablecoins paired against each other, or just very highly correlated assets. There are all sorts of different projects where they create assets that are meant to be correlated with each other. For example, you can imagine cDAI and DAI. You can create a liquidity pool between the two. You're going to have very low loss... basically losses in Uniswap come from the prices diverging in the assets. So an example use case would be a cDAI to cUSDC pair on Uniswap. A while back we were thinking about the idea of a DAI/USDC pair as an example use case for this. But one thing that kept coming up was the opportunity cost of blending stablecoins. Right now if you lend DAI or USDC you can make about a 15% return. Versus if you were a liquidity provider on the system in Uniswap, you would have to be making a 15% return for it to be worth it. But if we have the ability to create arbitrary ERC20 pairs, we could create a pair between cDAI and cUSDC where when someone wants to trade, the trader is abstracted from it. They just send some DAI to the contract. The DAI goes through Compound, converts it to cDAI, and then cDAI goes through Uniswap, converted to cUSDC, cUSDC back to Compound or USDC, and then USDC back to Uniswap in a single transaction. And what you have is for the liquidity provider, they're basically leveraging up. They're earning interest on Compound while earning fees on Uniswap. For the trader, all they deal with is DAI and USDC. So there's a much lower opportunity cost in this case for being a liquidity provider. There's no LP loss as long as stablecoins maintain their peg in this case. Now this is not true... you should be telling me that's wrong, because technically they can have a different interest rate. So there might be a very, very small potential loss between the two, but not very much. So users can swap DAI for USDC at very low prices. And then you could also even imagine this cDAI to cUSDC liquidity pool tokens then being used as collateral, because it's very stable. And then not only have you leveraged up by lending and market making at the same time, but then you're taking out a loan against that same collateral again. Yes, the money legos get kind of crazy, but we have a lot of fun with it.
Okay, so one of the things that this has been focused on so far is the idea of building on top of Uniswap. And we also want to improve the UX of Uniswap. And one of the best ways to improve UX for a single application is using layer 2. But with most layer 2s that have existed up until this point, it's always made the sacrifice where we can no longer interoperate cleanly and smoothly with other applications. So there are a few different applications out there: there's Plasma, there's ZK rollup, and now there's optimistic rollup. Maybe I'll very briefly, very high level, explain optimistic rollup. You post blocks, you execute them optimistically, which means you assume everything is valid unless it's proven invalid. And then basically there's some data off-chain that users can have that proves whether or not a transaction is valid or invalid. Very scalable because you basically execute everything on chain and you don't put any data on chain. Then you have ZK rollup. This is the idea that you can put data on chain, very minimal data for transaction, and then you do a SNARKs proof that all that data was executed properly. Optimistic rollup basically combines the two ideas. You execute everything optimistically, there's blocks that are posted and you assume that they're valid, but then you post the data that you need for the fraud proof to Ethereum. Okay, so optimistic rollup is lit. Optimistic rollup can scale Uniswap. We can do generalized smart contracts on... yeah, an optimistic rollup can scale generalized interoperable smart contracts on Ethereum. So we can continue to build stuff on top of Uniswap while scaling it. Some credit to Plasma Group. There's Karl over there, I don't know if anyone else from Plasma Group is in here, maybe not. But made up of Jinglan Wang, Karl Floersch, Ben Jones, Will Meister, and then credit to Vitalik. Yeah, made of Vitalik who has also done a lot of, most of the research... not most of the research, but the Plasma research for sure, and creating Ethereum. So can optimistic rollup do Uniswap? Yes, it can, and we built it. It can do about... and by 'we' I mean Uniswap created a front end and Plasma Group created a back end. It can do about 250 transactions per second, or if we optimize the client on Istanbul, it can... has native meta transactions so you can queue up multiple transactions. And it was built by Uniswap and Plasma Group.
So now I'm going to ask you all to pick a team. It's really important. Are you team unicorn? Unicorns are majestic, they're shy, they're beautiful, and they love long walks in nature. Or are you team pig? Pigs are cute, they're very smart, they're the life of the party, and they love eating until they fall asleep. Okay, raise your hand if you're team unicorn. This is sad. Come on, a few more people raise your hand. Okay, okay. Raise your hand if you're team pig. Okay. You know, it seems to be 50/50 mathematically, but not in this room. Not in this room. I guess the pigs like my talk more. Okay, so I created a site. It's called unipig.exchange. I'm going to demo it right now. I think I have time. We have... okay, I have time. Good, good. All right.
Actually, I've got a hard refresh. I wanted this. Okay, cool. All right, you going to that exchange is a demo of Uniswap on optimistic rollup. Been working on it for the last month. All right, so the first thing... we need some form of civil resistance because the money is all fake, so we can't charge you fees. All right, so you can go get tokens from Twitter. We have a pretty great Twitter faucet. All right, it brings up this tweeting at unipig.exchange. I'm going to tweet. Waiting for my tweet. Come on, tweet. Yay! Okay, so we just got sent 30 UNI tokens and 30 PIGGY tokens on our layer 2 wallet. This wallet is a burner wallet built into the browser. You see, you can open it up, there's a wallet. Now, unlike most demos, I'm not going to be waiting very long for these transactions to confirm. See, and it's done. And it's done. Although we don't want to... we want to sell all our pigs so it increases the value of UNI. And it's done. Okay, we also have an airdrop. Let's do this. Okay, so the idea of this is basically to encourage participation. So if two people match up and they both have wallets on unipig, they can scan each other. Ready? Just like that. Wait for it, wait for it. There you go. And I got 10 tokens on this account and 10 tokens on the other account. Yeah, so the real thing with optimistic rollup is it's a massive UX improvement over using the base chain. Right, you can get instant confirmations, you can get 250 transactions per second, you don't need to do the approve and transfer, you can basically queue them up together. It basically doesn't exist. Yeah, let's see our stats here. So we've done about 2,100 transactions throughout Devcon. We've had a bunch of people try this demo. I didn't realize this: I always pay a really high gas price for all my transactions. The average gas cost of a transaction, the average wait time of transactions on Ethereum is over a minute. So we've saved 3,600 minutes on these 2,000 transactions of people just sitting around waiting. So that is a lot of time. Yeah, all right. Anyway, I think I'm going to open up to your questions. If you have any questions about this demo, about Uniswap V2...
