A Short Story of UNISWAP and UNI Token. DEFI Explained

Contents

Uniswap Devaluates DeFi Tokens.

Uniswap Devaluates DeFi Tokens ...

We tell what is happening
CONTENT

  • Research indicates the centralized nature of routing on Uniswap

  • Trades are routed to six arbitrage trading pairs

  • Vampire bots make money on the price difference

International consortium of news organizations, developing transparency standards.

According to the latest research, Uniswap may be involved in the massive devaluation of DeFi tokens. The protocol directs trades through preferred liquidity pools.

The DFOhub protocol team recently investigated and found that Uniswap is centralized in nature, allowing “vampire arbitrage bots” to dump the prices of certain DeFi tokens. Experts are confident that trading bots configured to arbitrage between tokens provoke distortions and problems in the market.

“Uniswap routing – unintentionally – not only prevents certain projects from growing, but actually reduces their value.”.

Vampire Invasion

The report also explains that the token routing process on Uniswap does not scan all liquidity pools, but prioritizes pairs pegged to just six tokens. These include WETH, DAI, USDC, USDT, COMP and MKR.

Uniswap Devaluates DeFi Tokens ...

They are called Uniswap arbiters.

The project experts added that this process is hardcoded into the Uniswap code to ensure that the prices of these tokens are in sync with each other, but not in any other pair..

Uniswap Devaluates DeFi Tokens ...

Essentially, the router will bypass highly liquid pairs excluding those six preferred tokens, even if they generate more profit..

In the course of the study, it turned out that normal transactions occur only between pairs pegged to these six tokens, and prices change only within these pairs, which provokes price differences between them..

“Arbitrage bots attack, taking advantage of exchange rate differences, devalue tokens and receive free ETH”.

The study provides an example of how arbitrage bots can irrevocably siphon ETH from pools outside of these six tokens..

What can be done

DFOhub co-author Alessandro Mario Lagana Tosca, who wrote the report, said the Uniswap team needed to take this issue seriously..

He offers to rollback to Uniswap v1, where all transactions went through ETH only. However, this idea is unlikely to be received with enthusiasm. Another option is to counteract arbitrage by installing another bot on the system.

Uniswap Devaluates DeFi Tokens ...

A similar solution, tentatively titled QuickScope, is currently being developed by the DFOhub team..

The first version was unsuccessful, as vampire bots make money from microtransactions, spending, for example, $ 5 in ETH to earn $ 8, and using a Solidity feature called “Delegate Call”, which reduces gas fees. The QuickScope v2 bot is currently under development and is being tested by the team.

DFOhub looks forward to working with Uniswap to help solve this problem by siphoning ETH from protocols and devaluing tokens on the world’s most popular DEX.

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