What is the difference between V2 and V3 models?
The shift from V2 to V3 marked a revolution in capital efficiency within Defi Exchange Development. In a V2 model (like Uniswap V2), liquidity is spread across the entire price range from zero to infinity. While simple, it means that 90% of the capital is never used. In a V3 model, liquidity providers can "Concentrate" their capital in specific price ranges where most trading happens.
Implementing a V3 exchange is significantly more complex in Defi Exchange Development. Instead of simple ERC-20 tokens, liquidity positions are represented by NFTs that track the specific "Ticks" where a user has provided funds. This requires a sophisticated backend to calculate real-time fees and rebalance positions. However, the benefits are undeniable: V3 platforms can process much larger trades with less slippage, making them the preferred choice for professional traders.
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