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V3 DEX

About Kinetix's UniV3-style Automated Market Maker (AMM)

PreviousV2 DEXNext$KAI Tokenomics

Last updated 6 months ago

Although UniV2-style AMMs are perfectly suited for passive LPs, they suffer from certain capital inefficiencies.

In particular, UniV2-style AMMs do not allow for traders to optimize rates, and do not give LPs the ability to implement personal strategies to minimize impermanent loss. Although they are more complicated than UniV2-style AMMs and require active monitoring, UniV3-style AMMs address these issues.

To do so, UniV3-style AMMs bring in several exciting features, with the most important ones being:

  1. Concentrated Liquidity: LPs on UniV2-type AMMs provide liquidity only in a single range choice: 0 to infinity. With V3, LPs now have the choice to select their own range to optimize their risk and get better returns than before. The smaller the range, the more fees LPs earn when the price is within the range. However, the risk is higher because when the price moves outside the range, the LP no longer earns fees and their liquidity is exchanged for a single token (see point 2).

  2. Integration of limit orders for LPs: The bounds of the range chosen by the LP represent limit orders. This means that if an LP has decided to provide liquidity on ETH/USDC in the range 1800-2000:

  • Below the range of 1800: Their liquidity will be converted 100% to USDC.

  • Above the range of 2000: Their liquidity will be converted 100% to ETH.

If the ETH price leaves and returns to the range, the liquidity will be converted back to 50/50, and the LP will earn fees again.

  1. Integration of NFTs: Positions are now represented in the form of NFTs, which represent the unique aspect of each pool.

  2. Possibility for LPs to choose multiple fee options: This allows users to adapt to the risk and volatility of each pool.

The introduction of these new features on Kava, powered by Kinetix, marks a significant milestone. With these additions, users gain the ability to enhance risk management, optimize and maximize earnings, and conduct more efficient trading activities on Kava than ever before.

  • For a Tutorial on how to LP on our V2 DEX, click the link below:

Add V3 DEX Liquidity
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