How minting works on Uniswap V3
Uniswap V3 introduces concentrated liquidity and multiple fee tiers, allowing liquidity providers (LPs) to allocate their capital within specific price ranges, enhancing capital efficiency compared to Uniswap V2's uniform liquidity distribution. This mechanism allows for more effective trading and price discovery, particularly beneficial for ERC404 projects by providing a flexible and efficient minting and trading platform, addressing issues like price discovery, liquidity, and market engagement, while reducing constraints of previous models.
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The explanation below is provided by the Pandora Project Documentation (credit to them) and is a useful resource for getting to know how Uniswap V3 launches work.
Overview
A New Approach to Minting
Why Uniswap V3?
A common ERC404 use-case is to utilize Uniswap as both an exchange and mint platform. Common ERC721 projects have long faced issues with price discovery and liquidity, some examples of which are as follows:
Mint prices are set too low, forcing slow price discovery on illiquid secondary markets
Mint prices are too high killing projects along with all price discovery
Bonding curves tend to be too constraining given the above, often resulting projects not minting out
Illiquid markets tend to prevent active or engaging speculation
Botting / sniping can create unfair releases requiring large technical overhead to remediate
One of the main draws of ERC404’s flexibility has demonstrably been it’s ability to easily integrate with mature DeFi protocols. Utilizing Uniswap V3 as a mint platform and exchange allows projects to see the full spectrum of price discovery, while supporting deep liquidity and higher, consistent royalty earnings (while charging users lower royalty fees). Specifically, Uniswap V3 as a bonding curve, paired with native fractionalization allows projects to launch more flexibly and in a way that removes traditional mint constraints.
Approaching a Uniswap V3 Launch (Example Launch Plan)
It’s important to consider Uniswap V3 as a novel mint mechanism that requires some degree of planning. You’ll want to define a curve along which initial supply is pooled, moving up to a full range LP.
An example launch plan for a 10k collection could be as follows:
2500 tokens provided in a range from 0.01 - 0.02 eth (example)
2500 tokens provided in a range from 0.02 - 0.05 eth (example)
5000 tokens provided in a full range of 0.05+ eth
It’s critical to note that this final pool should have an infinite or very high maximum price, effectively serving as a bounded V2 pool; this ensures that the collection has no price “ceiling” whereas the bottom pool ensures a hard, absolute floor price.
Source: Pandora
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