Uniswap V4 is here: This is what the future of Uniswap V4 could look like

Uniswap V4 has arrived: glimpses into the future of Uniswap V4.

On June 13, 2023, Uniswap released the Uniswap V4 code draft.

On the occasion of the release of the Uniswap V4 code draft, Bankless podcast invited Uniswap founder Hayden Adams to discuss everything about V4.

Here is the information about Uniswap V4 that Hayden Adams talked about in the podcast that you need to know. Summarized by Bankless’s Ben Giove and compiled by Blockingcryptonaitive.

Breakdown of Uniswap V4

Hooks

The defining feature of Uniswap V4 is hooks. Hooks are pieces of code that run at some point in the lifecycle of a pool—whether it’s when the pool is created, when LPs add/remove liquidity to the pool, or before/after a swap. Hooks are important because, compared to Uniswap’s previous generations, they allow for greater pool customization.

For example, hooks can be used to create pools with dynamic swap fees that change based on market conditions, rather than pre-set and static pools.

Hooks also allow traders to issue more complex orders, such as limit orders or TWAP (Time-Weighted Average Price) orders to buy/sell a certain amount of tokens over a given time period.

Additionally, hooks allow for liquidity in Uniswap to be used in different ways. Similar to Balancer’s boosted pools, out-of-range liquidity for a pool can be deposited into other protocols for additional yield, such as lending protocols.

These examples are just some of the examples the Uniswap team came up with. Anyone can build and deploy their own hooks without permission.

Singleton

The second big change brought by Uniswap V4 is the introduction of Singleton. As the name suggests, Singleton is a single contract containing all the different pools in Uniswap V4. This is different from Uniswap’s previous iterations, in which each pool was stored in its own separate contract.

This model significantly improves the gas efficiency of V4, as complex swaps will be routed through a single contract instead of multiple different contracts, which can be very gas-intensive. It is estimated that the use of Singleton can also reduce the cost of deploying new pools (i.e. new trading pairs) by up to 99%.

Singleton also leverages what Uniswap Labs calls the “flash accounting system.” This will further reduce gas costs when trading on DEXs by simply transferring the net balance of tokens out of the pool after the exchange is completed. This is different from Uniswap V3, where all assets involved in the trade are transferred in/out of the pool during the exchange process.

Governance, Release, and Distribution

Uniswap V4 will be managed by Uniswap DAO and UNI holders.

As with previous versions V3 and V2, the protocol will include a fee switch that Uniswap governance can activate on a per-pool basis to reduce fees incurred by liquidity providers.

V4 will be released under Business Source License 1.1, with a term of four years, and will restrict protocol usage to governance-approved entities.

Finally, it is worth noting that the release of Uniswap V4 is not imminent. According to Hayden in the podcast, the V4 code has not been finalized and audited yet, and should be determined at some point before the protocol’s release.

What Uniswap V4 Means for DeFi

V4 will have broad implications for both Uniswap itself and the DeFi space as a whole.

For casual users, the upgrade should help Uniswap maintain its position as the largest decentralized exchange by trading volume, as hooks can improve the protocol’s capital efficiency relative to V3, while being more customizable and gas-efficient. The latter two features should help Uniswap capture more order flow from DEX aggregators and long-tail exotic trading pairs, while maintaining its dominance in trading pairs with larger volumes such as ETH/USDC, ETH/USDT, ETH/DAI.

Additionally, the ability to create more order types (such as TWAP and limit orders) should help Uniswap become more competitive with centralized exchanges by attracting more sophisticated traders to the DEX. This, coupled with the wider structural trend of trading activity moving on-chain following FTX’s crash and the recent regulatory pressures on CEXs such as Binance and Coinbase, may help Uniswap more aggressively challenge these competitors.

The DEX/CEX trading volume ratio hit an all-time high in May before retreating. Uniswap V4 seems likely to push this ratio to new heights.

Finally, V4 should help make Uniswap a more composable protocol. It’s well-known that Uniswap V3 lacks expressiveness and presents challenges in managing concentrated liquidity positions, making it difficult to build on top of. Relative to V3, it appears much easier to build and leverage V4 liquidity with hooks and singletons. This could bring about a plethora of new, interesting applications and spark a wave of DeFi creativity when the industry needs it most.

In summary, Uniswap V4 should help drive the industry forward and is an exciting new upgrade for DeFi. Yes, DeFi has been quiet for a while. But DeFi will be interesting again.

We will continue to update Blocking; if you have any questions or suggestions, please contact us!

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