Introducing Range Orders
Customizable liquidity positions, along with single-sided asset provisioning, allow for a new style of swapping with automated market makers: the range order.
In typical order book markets, anyone can easily set a limit order: to buy or sell an asset at a specific predetermined price, allowing the order to be filled at an indeterminate time in the future.
With Uniswap V3, one can approximate a limit order by providing a single asset as liquidity within a specific range. Like traditional limit orders, range orders may be set with the expectation they will execute at some point in the future, with the target asset available for withdrawal after the spot price has crossed the full range of the order.
Unlike some markets where limit orders may incur fees, the range order maker generates fees while the order is filled. This is due to the range order technically being a form of liquidity provisioning rather than a typical swap.
Possibilities of Range orders
The nature of AMM design makes some styles of limit orders possible, while others cannot be replicated. The following are four examples of range orders and their traditional counterparts; the first two are possible, the second two are not.
One important distinction: range orders, unlike traditional limit orders, will be unfilled if the spot price crosses the given range and then reverses to recross in the opposite direction before the target asset is withdrawn. While you will be earning LP fees during this time, if the goal is to exit fully in the desired destination asset, you will need to keep an eye on the order and either manually remove your liquidity when the order has been filled or use a third party position manager service to withdraw on your behalf.
Take-Profit Orders
The current price of a DAI / ETH pool is 1,500 DAI / ETH. You would like to sell your ETH for DAI when the price of ETH reaches 1,600 DAI / ETH. This is possible, as the price space above the spot price is denominated in the higher valued asset, ETH. You can provide ETH at a price of 1,600 DAI / ETH and have the order filled when the spot price crosses your position.
Buy Limit Orders
The Current price of a USDC / EVMOS pool is 0.5 USDC / EVMOS. You expect that EVMOS will rebound after it drops to 0.25 at the next market downturn, so you would like to place a range order swapping USDC to EVMOS at the price of 0.25 USDC / EVMOS. This is possible, as the price space below the spot price is denominated in the lower-priced asset, USDC. You can provide USDC at the price of 0.25 USDC / EVMOS, which will be swapped for EVMOS when the spot price of EVMOS drops past 0.25 USDC / EVMOS.
As the above examples show, in Uniswap V3, the two paired assets in a given pool are separated above and below the spot price, with the higher price asset available above the spot price and the lower-priced asset below.
The following examples show limit order styles that are unable to be replicated due to the separation of assets in price space.
Stop-Loss Orders
The current price of a USDC / ATOM pool is 15 USDC / ATOM. You expect once the price of ATOM drops to below 12, it will tank to 8. So you would like to place a range order from ATOM to USDC at a price of 12. This is not possible as the price space below the spot price is denominated in USDC, and so you cannot allocate the ATOM necessary at 12 to be swapped into USDC.