Unveiling Uniswap V4: A Deep Dive into the Next Chapter of Decentralized Trading
Updated: Jul 24
Uniswap, the largest decentralized exchange protocol with trading volume of over $1.5 trillion, recently introduced the Uniswap v4. Like any technology, it's crucial for them to keep improving. So let's dive and see what’s here new with Uniswap V4
The team behind Uniswap was excited to share the early-stage code of Uniswap v4, opening up the opportunity for public contribution and feedback. This way, the creation process of v4 is transparent and interactive.
Uniswap’s last upgrade, the v3 made significant steps in liquidity provision, introducing features like oracles that provide real-time price data on the blockchain. However, these additions sometimes came with higher fees and complexity.
The key feature of Uniswap v4 is a mechanism called "hooks." These are like commands that run during different stages of a liquidity pool's activities. This means that the people running the pools can make their own decisions about things like fees, how tokens are swapped, and more. Some pools may operate like they did in v3, while others can adopt new functions such as onchain limit orders or acting as a time-weighted average market maker (TWAMM) to distribute large orders over time.
For example, you could create pools that adjust fees dynamically based on market conditions, or set up onchain limit orders. These hooks can even enable a pool to work as a time-weighted average market maker (TWAMM), which can break up big orders over a period of time, minimizing the impact on the market price. The possibilities are endless, and it's up to the developers' creativity to take full advantage of this feature.
Uniswap v4 also promises to be more cost-effective and efficient. It introduces a "singleton" contract where all pools are held within one smart contract. This combined with the new hooks feature promises to provide a speedy and secure way of customizing pools while making cross-pool transactions more efficient.
So what exactly does Uniswap v4 offer?
Well, in Uniswap v3, a liquidity pool's life cycle is highly ordered and strict. But with the introduction of hooks in v4, pool operators can add their own code to execute specific actions at key points in a pool's life cycle.
These hooks essentially allow developers to add new functions to the Uniswap Protocol's liquidity pools, giving them more control and customization. They could introduce dynamic fees, onchain limit orders, custom onchain oracles, and more.
Uniswap v4 also improves on v3 by introducing a "singleton" contract, which holds all the pools in one place. This is expected to significantly reduce the cost of creating pools and carrying out multi-pool swaps.
Another new addition is the "flash accounting" system. Unlike v3, where assets were moved in and out of pools at the end of every swap, this system only transfers on net balances, creating a more efficient system.
Uniswap v4's code will be under a Business Source License 1.1, meaning its use in commercial settings will be limited for up to four years before turning into a GPL license. The Uniswap community will govern v4 just like they did previous versions.
With these key enhancements and new features, Uniswap v4 aims to revolutionize the DeFi space by offering a more efficient, customizable, and cost-effective decentralized exchange protocol.
And now we wait!