V2 & V3 DEX
Two automated market makers, one protocol. When to use V2, when to use V3, and how LP positions work.
Watergun documents two AMM models on its DEX networks: a classic V2 (Uniswap-V2-style constant product) and a V3 (concentrated liquidity with fee tiers). They are based on PancakeSwap code, but upstream audits do not constitute audits of Watergun deployments — see Audits. The PulseChain DEX belongs to 9mm Pro, not Watergun.
V2 vs V3 at a Glance
| V2 (Infinite Range) | V3 (Concentrated) | |
|---|---|---|
| Liquidity distribution | Spread across the entire 0 → ∞ price curve | LP chooses a specific price range |
| Capital efficiency | Lower — capital sits idle far from the current price | Much higher — capital concentrated where trading happens |
| Fee model | Single flat fee: 0.17% per swap | Five tiers: 0.01% / 0.05% / 0.25% / 1% / 2% |
| LP position represents | Fungible PLP tokens | NFT position with custom range |
| Management | Set-and-forget | Active — positions go inactive if price leaves the range |
| Best for | New LPs, stable pairs, passive yield | Experienced LPs, tight pairs, active management |
| Impermanent loss | Smooth across entire range | Amplified within range (as can LP fee income) |
| Limit orders | Not natively | Single-asset deposits act as range-bound limit orders |
V2 — Infinite Liquidity Range
V2 uses the constant product formula x · y = k, the same model Uniswap pioneered. LPs deposit two assets in equal value; the product of the reserves stays constant as trades happen, which sets the price automatically.
- Fees auto-compound back into LP positions — no claim action required
- PLP tokens represent your share of the pool. They're standard ERC-20s, so you can transfer them or redeem them for the underlying assets at any time
- Simple, with no active management — ideal for LPs who want to deposit and walk away
- Asset A50% of the deposited value.
- Asset B50% of the deposited value.
- V2 poolThe reserves follow x · y = k.
- TradesEach swap returns a 0.17% fee to the pool.
- PLP tokensRepresent your proportional pool ownership.
V3 — Concentrated Liquidity
V3 lets LPs allocate capital to a specific price range rather than the entire curve. If you expect ETH / USDC to trade between $2,800 and $3,200, you can provide liquidity only in that range — boosting capital efficiency dramatically.
Fee Tiers
When you create a V3 position, you pick the pool's fee tier. Each pair can exist at multiple tiers simultaneously; liquidity naturally gravitates to the tier that best fits the pair's volatility.
| Tier | Typical Use | Example Pairs |
|---|---|---|
| 0.01% | Ultra-stable / pegged | stablecoin ↔ stablecoin |
| 0.05% | Low volatility | wETH ↔ stETH, stablecoin pairs |
| 0.25% | Standard | most blue-chip pairs |
| 1% | Volatile / exotic | long-tail token pairs |
| 2% | Highly volatile | memecoins, microcap pairs |
Single-Asset Limit Orders
Because V3 liquidity only exists within a range, a single-asset deposit above or below the current price effectively acts as a range-bound limit order: when the price crosses into your range, your asset gets swapped at the rate you set.
Active Management
V3 positions only earn fees while the price is inside their range. If the market moves outside your range, your position stops earning until you rebalance or the price moves back in. This is the tradeoff for V3's higher capital efficiency.
- Current priceCompared with the LP position’s selected range.
- Inside the rangeThe position is active and earning fees.
- Outside the rangeThe position is idle and does not earn fees.
- Position changes stateWhen price moves or the LP rebalances the range.
Where to Trade
- PulseChain DEX (9mm Pro): 9mm.pro — separate from the Watergun DEX
- Base — dex.watergun.pro/swap?chain=basechain
- Ethereum — dex.watergun.pro/swap?chain=eth
- Sonic — dex.watergun.pro/swap?chain=sonic
For trades that route automatically across V2, V3, and external liquidity, use the Watergun Swap aggregator instead.
Related
- Fees — trading and liquidity fee reference
- Deployments — contract addresses for every V2 / V3 pool factory
- Glossary — AMM, concentrated liquidity, impermanent loss