A detailed explanation of Uniswap's new cross-AMM protocol UniswapX

Since the first version of the Uniswap protocol was launched in 2018, on-chain transactions have exploded. Uniswap now supports millions of users, hundreds of use cases, and $1.5 trillion in transaction volume.

To grow on-chain transactions and improve self-hosted swaps, Uniswap announced the launch of a new license-free, open-source (GPL), Dutch auction-based protocol, UniswapX, for trading across AMMs and other liquidity sources.

Currently, a beta option for the protocol is available on the Uniswap Labs interface for the Ethereum mainnet, and will expand to other chains and Uniswap wallets in the future.

UniswapX will gradually realize:

• Aggregate liquidity sources to increase exchange value
• Anti-MEV
• Provide gas-free transactions (swap)
• Failed transactions have no cost
• And will expand to support cross-chain gas-free transactions in a few months

UniswapX: Next Level Aggregator

Onchain routing is an increasingly important and complex problem. The innovation of on-chain transactions has led to an explosion of liquidity pools. New fee tiers, new L2, and more on-chain protocols will decentralize liquidity. Uniswap expects to build thousands of custom pool designs on top of Uniswap v4, making routing even more challenging. But continuing to offer competitive pricing as liquidity sources grow requires manual integration and a lot of ongoing maintenance and work.

UniswapX, aims to solve this problem by outsourcing the routing complexity to an open network of third-party builders who then utilize competition based on on-chain liquidity (such as AMM pools or their own inventory) to complete the swap.

With UniswapX, traders will be able to use the Uniswap interface without worrying about whether they are getting the best price, and trades will always be transparently recorded and settled on-chain. All orders are backed by Uniswap smart order routing which forces builders to compete with Uniswap v1, v2, v3 and once launched v4.

How to use UniswapX?

No gas exchange - no need to pay any fees if the transaction fails

With UniswapX, a trader signs a unique off-chain order, which is then submitted on-chain by a builder who pays Gas on behalf of the trader. Because traders don’t need to pay Gas, they don’t need the chain’s native network token (e.g. ETH, MATIC) to make transactions or pay any fees for failed transactions. Builders factor gas fees into the swap price, but can reduce transaction costs by batching multiple orders to compete for the best price.

In specific cases, users still need to pay for gas, such as Permit 2's initial token approval. In addition, native network tokens need to be packaged when they are sold, which will consume Gas fees.

MEV Protection

MEV is one of the biggest problems facing on-chain exchanges today, resulting in high transaction costs.

With UniswapX, MEV that would otherwise be captured through arbitrage trading is returned to swappers through price increases. UniswapX also helps users avoid more explicit forms of MEV extraction: orders executed using builder inventory cannot be sandwiched, and builders are incentivized to use private transaction relays when routing orders to on-chain liquidity venues.

Cross-chain

A cross-chain version of UniswapX, which combines swap and bridging into one seamless operation, is expected to launch later this year. With cross-chain UniswapX, traders will be able to swap between chains in seconds. Traders can also choose which assets to receive on the target chain, rather than bridge-specific tokens.

Start UniswapX

UniswapX is an immutable smart contract that is completely permissionless. Contracts cannot be modified or suspended by anyone, including Uniswap Labs. The earliest builders are on call to ensure proper auction starting prices and fast order execution, and the builder network is expected to expand rapidly with user adoption. Currently, ABDK has extensively tested and audited the UniswapX code, and Uniswap offers a bug bounty. Swappers maintain self-custody of their funds at all times. Only after the order is executed and they receive the proceeds of the trade will the assets be transferred from their account.

Just like the Uniswap protocol, UniswapX includes a protocol fee switch that can only be activated by Uniswap governance (Uniswap Labs is not involved in the process).