Volatility Impact on TAM:
- The chart shows that the TAM for both Uniswap v2 and v3 tends to spike in periods of high WETH price volatility. On August 5, 2024, for example, the volatility percentage peaked at around 42.896%, coinciding with significant peaks in both v3 ($35k) and v2 ($12.8k) TAM values.
- This suggests that higher price volatility drives more trading activity as arbitrageurs and traders look to capitalize on price swings, leading to increased fees generated for liquidity providers (LPs), thereby boosting the TAM.

Uniswap v3 Dominance:
- Throughout the period, Uniswap v3 consistently shows higher TAM values compared to Uniswap v2. This is expected as v3's concentrated liquidity allows for more efficient capital usage, generating higher fees and attracting more volume during volatile periods.
- On most dates, Uniswap v3's TAM values are significantly higher than those of v2, reinforcing the narrative that the granular control over price ranges in v3 is more attractive to LPs, especially when volatility is present.
Volatility-Driven Variability in TAM:
- The TAM values for both v2 and v3 show high variability, with sharp spikes and drops correlating with the volatility percentage. For example, following the peak on August 5, 2024, both v2 and v3's TAM drop in the subsequent days as volatility declines, illustrating that stable markets may lead to lower trading volumes and thus lower TAM.
Decay During Low Volatility Periods:
- During periods of lower volatility, the TAM for both Uniswap v2 and v3 appears to decrease. This trend indicates that during times of lower market activity or more stable prices, the liquidity provision becomes less profitable, thereby reducing the overall market size for LPs on both platforms.
- This is evident in the periods between August 11-14 and August 18-21, where both TAMs are at relatively lower levels alongside reduced volatility percentages.
Differential Sensitivity of v2 and v3 to Volatility:
- Uniswap v3 appears to be more sensitive to volatility spikes compared to v2, reflected by more significant fluctuations in its TAM values. This could be due to v3's concentrated liquidity feature, where LPs can choose narrow price ranges. In high volatility periods, these ranges may require frequent rebalancing, leading to increased fees and a higher TAM.
- On the other hand, v2's TAM shows more moderate increases, which may suggest that its uniform liquidity model provides more stability but less opportunity for rapid fee accumulation in volatile markets.

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Loss-Versus-Rebalancing (LVR) on Uniswap V3

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