Keep these risks in mind when playing with Layer 2 Uniswap

Uniswap has officially deployed and opened up the user experience on Optimistic Ethereum (hereafter referred to as OE) today. However, due to the current ecological development of OE is still in the early stage, most users lack the experience of trading on Layer2. This article will provide a brief analysis of how ordinary users should use the new Layer2 platform and applications, and what new risks they will encounter.

How to enter the OE version of Uniswap and transfer to assets

The first problem to solve for those who want to try it out is how to find the transaction entry point for Uniswap OE version.

Perhaps due to the fact that OE development has not yet been finalized, even though the experience has been opened, there is currently no obvious transaction entry point for the OE version of Uniswap on the Uniswap website.

If you still want to experience Uniswap at Layer 2 first time, users need to first connect their MetaMask wallet on Layer 1 Uniswap and switch the wallet network from the Ethereum mainnet to the Optimistic network.

For users who have not yet configured Optimistic network parameters in their wallets, here is a simpler way to configure network parameters for their optimisation.

Login To https://chainlist.org, connect the wallet, find the Optimistic Ethereum with Chainid number 10 in the webpage, click Add To Metamask below, and click OK as prompted. You can directly help configure the relevant network parameters in your wallet.

Let's go back to the main interface of Uniswap. When we change the network in the wallet to Optimistic, the homepage of Uniswap will automatically refresh and switch to the new version of Uniswap (see the figure below).

As you can see, the OE version of the trading interface is almost the same as before.

But if there is no asset in your OE wallet at this time, an obvious hint will appear at the top of the trading interface. Clicking on the link takes you directly to OE's cross-tier asset bridge.

The way of cross-layer asset exchange is basically the same as that of a general cross-chain bridge in terms of experience, so the process of asset migration will not be described here.

It is important to note that Uniswap does not currently support moving a user's market-making position in Layer 1 directly to the OE version of Uniswap with a single click. If the user wants to move the funds currently making market in the main chain Uniswap to the OE version of Uniswap, he or she needs to first withdraw the marketmaking token, then transfer the tokens through the asset bridge, and re-make the market in the OE version of Uniswap after successful migration.

It can be seen that this operation is not only time-consuming, but also consumes a large amount of commission, so it is not recommended to try at the initial stage.

In addition, due to the limitation of Optimistic development team in the test stage, the cross-layer asset bridge temporarily only supports the migration function of 5 tokens (ETH, USDT, WBTC, DAI and SNX).

Advantages and risks of the OE version of UNISWAP

(1) immediate transaction

The OE version of Uniswap does not differ from the original in terms of specific trading and market making methods. However, due to the upgrade of the layer architecture, the confirmation time of a user's transaction is no longer limited by the block time of Ethereum, so users can experience a transaction experience that is close to instant transaction on Layer2.

(2) Low cost

The following is a comparison of the amount of gas spent trading on the OE version of Layer2 versus Layer1 on the OE blog. It can be seen that Layer2 is currently reducing the cost of trading assets on Uniswap by at least 90%. For derivatives trading on Synthetix, the cost can be nearly 50 times lower.

(3) Liquidity fragmentation and high trading slippage

It is important to note that the system does not currently support cross-tier transaction routing for transactions committed on the OE version of Uniswap. In other words,Even if the pair you are currently trading has a better price in L1, Uniswap will only execute at the price in L2.So the current liquidity of the Uniswap pools of L1 and L2 is segregated.

As the OE version of UNISWAP has just been released, the lockup volume is less. So the OE version of Uniswap must be much less fluid than the L1 version in the early days of the launch.This results in significantly lower gas costs for Layer2 transactions, but higher transaction slippage on OE's Uniswap if the user has higher transaction volumes.

(4) price distortion

In addition, because the deployment of smart contracts has not been fully opened on the OE at present, it is not possible to deploy the robot program for cross-layer arbitrage. When the prices of different trading platforms differ, ordinary users can only carry out manual arbitrage.This makes it likely that prices quoted on the OE version of Uniswap will frequently deviate from the equilibrium price of the overall market.

Therefore, early OE Uniswap traders need to be careful to check the latest quotation in different markets before trading. If you accept the automatic quotation of the OE Uniswap directly, you may incur unexpected losses for large traders.

Of course,The risks mentioned above will gradually be solved with the continuous maturity of OE platform and the increase of TVL. In the future, users will enjoy more advantages brought by Layer2's low transaction costs and high settlement speed.

Risk of early Optimistic Ethereum platform

In addition to the above mentioned because of liquidity cut and lock the risk caused by insufficient storehouse, the OE is not mature may also bring certain risk to early users.

(1) Main network downtime and upgrade

As it is still under development, the current OE mainnet is subject to periodic or irregular downtime upgrades depending on the development schedule. Specific regular downtime upgrade plan can be concernedOfficial announcement.

While the security of the user's assets stored on Layer2 will not be affected during an outage, LPs of the OE version of Uniswap will not be able to manage and adjust their market-making positions in real time based on market prices during an OE outage. Therefore, when the shutdown is over, it is possible to be arbitraged because of instantaneous price fluctuations and bear a large variable loss.

(2) Opportunity cost of capital

In the current OE, the ecological development of the whole system is still at a very early stage. There is no better way for users to make money by migrating to OE than by experiencing the trading capabilities of a few projects (such as Uniswap and Synthetix). If a user stores a large amount of money on OE's Layer2, they will also lose the opportunity to use the same money on Layer1 to earn various mining or pledge benefits.

Judging from the statements made by the officials of Optimistic and Uniswap at present, it is obvious that there are still many problems in the current Optimistic Rollup that need to be gradually solved. Therefore, there are still many limitations both in terms of user entry and stratigraphic functions. It can be seen that the project team is deliberately controlling the size of users to prevent the explosion of users after the open experience, which would put too much pressure on the system in its early stage. Therefore, the products launched at the current stage are more suitable for the early experience of users who are brave to try and have a high risk tolerance.

In any case, the deployment of Uniswap is a significant milestone for the long-discussed expansion of L2 capacity. In the future, Rulse Blockbeats will continue to pay close attention to the development of Layer2 ecology, bringing readers first-hand reports and experiences.

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