Incompatibility of Fee-on-Transfer and Rebase Tokens with Uniswap V3

Uniswap V3 has revolutionized decentralized trading with its innovative liquidity provision model, but its architecture is fundamentally incompatible with certain types of tokens, specifically fee-on-transfer and rebase tokens. These tokens introduce mechanisms that challenge the core functionalities and pricing algorithms that Uniswap V3 relies on. This incompatibility stems from the inherent properties of these tokens and how they interact with Uniswap's smart contracts and pricing structure. Fee-on-transfer tokens impose transaction fees that reduce the amount of tokens transferred, which can disrupt the precise liquidity calculations required by Uniswap V3. Rebase tokens, on the other hand, undergo periodic changes in supply that affect their value in unpredictable ways. This dynamic makes it challenging for Uniswap V3’s automated market makers to provide accurate pricing and liquidity, leading to potential inefficiencies and unexpected outcomes. In this article, we will delve into the specifics of why these tokens are incompatible with Uniswap V3, explore the technical details of their interactions, and discuss potential workarounds or alternative solutions. By examining these aspects, we aim to provide a comprehensive understanding of the limitations and implications for traders and liquidity providers within the Uniswap ecosystem.