Uniswap v4: What’s Next for the Top DEX?

Uniswap v4: The Future of Top DEX

On June 13, Uniswap, the decentralized exchange (DEX), announced the highly anticipated version 4 upgrade after releasing v3 more than two years ago. Many new features help Uniswap maintain its position as a top DEX in terms of trading volume and total value locked (TVL). This article will explore what these features are, what they mean, and their impact on the UNI token.

Uniswap v3 has completely changed liquidity supply by introducing concentrated liquidity. This efficient model allows liquidity to be deployed to specific price ranges, rather than all prices from 0 to infinity like Uniswap v1/v2, greatly improving capital efficiency, resulting in higher liquidity provider fees and better prices. These improvements have pushed Uniswap’s average trading volume to $5 billion and TVL to $2.6 billion.

While not offering massive improvements, v4 lays the foundation for Uniswap’s continued dominance. The highlight is the introduction of hooks, which trigger smart contract execution after specific pool operations such as liquidity provision, removal, or trade completion. They can be used to create dynamic fee models or support on-chain limit orders. It also allows the maximum extractable value (MEV) to be allocated to liquidity providers (LPs) instead of Ethereum stakeholders, resolving a controversial issue within the blockchain space. For example, lending pools like Aave can provide liquidity beyond the range, and countless other possibilities. Hooks pave the way for developers to create unique and customizable primitives for crypto transactions, enhancing Uniswap’s competitive advantage.

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Several other improvements create a better environment for the Uniswap ecosystem. For example, instead of separating each pool into its own smart contract, all pools will be managed by a single smart contract in v4. This will reduce the cost of deploying new trading pairs by 99% and reduce the cost of multi-coin swapping.

Another competitive advantage is that Uniswap has an exclusive license to the code for up to four years. At that time, it will be made public and can be copied by other exchanges, just like v3. Recently, v3’s license expired, and its model has been adopted by clone exchanges like Sushiswap, which is also one of the reasons for releasing v4 at this time.

Similar to previous versions, Uniswap v4 offers UNI token holders the option to enable fee switching, which allocates a portion of the trading fees to the Uniswap DAO, and thus to the token holders. While enabling this feature may seem obvious, it brings several consequences. Not only will it lead to strong regulatory opposition and a potential SEC labeling of UNI as a security, but it will also turn Uniswap into a “late-game” protocol, like a dividend stock, focused on cash flow rather than growth and innovation. Additionally, this will incentivize liquidity providers to move to other exchanges, where they can get a larger share of trading fees.

Uniswap has been continuously innovating since its first release in 2018, making it one of the DeFi blue-chips and one of the safest Ethereum tokens to hold. V4 continues this trend and provides the infrastructure for developers to create custom plugins and workflows on existing liquidity, lower trading fees, and the long-awaited fee switch option. With a few months remaining until V4’s full release, let’s wait and see the market effects after its launch.

Author: BitpushNews Lincoln Murr

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