Uniswap v4: Customizable And Cost-Effective Solution For DEXs?

June 13, 2023

Uniswap Labs has announced the release of the draft code for Uniswap v4, the next iteration of the popular decentralized exchange (DEX) protocol. Uniswap v3 was a watershed moment for on-chain liquidity and Decentralized Finance (DeFi), processing over $1.5 trillion in trading volume since its release two years ago.

However, as technology and markets evolve, so must the Uniswap Protocol, according to the announcement released today.

Uniswap Labs Unveils V4

Uniswap Labs has revealed the draft code for Uniswap v4, which promises to bring a world of possibilities to on-chain liquidity and decentralized finance. Uniswap v4 introduces a new architecture that reduces costs and increases efficiency, making it a more powerful and flexible platform for liquidity provision and on-chain trading.

One of the most significant changes in Uniswap v4 is the introduction of hooks, which are contracts that run at various points of a pool’s lifecycle. These hooks allow developers to customize how pools, swaps, fees, and liquidity provider (LP) positions interact.

With hooks, developers can create customized automated market maker (AMM) pools that integrate with v4’s smart contracts. The sky’s the limit, with potential experiments including time-weighted average market makers, dynamic fees based on volatility or other inputs, on-chain limit orders, and more.

Another major change in Uniswap v4 is the introduction of a new singleton contract that holds all pools, providing important gas savings. This eliminates the need to deploy a new contract for every pool, making creating pools and performing multi-pool swaps more efficient.

Early estimates suggest that v4 reduces pool creation gas costs by 99%, making it cheaper to create minimalistic pools that are more affordable to use.

This new feature also brings back support for native ETH, which offers additional gas savings. Furthermore, the new flash accounting system in v4 transfers assets on net balances, providing even more gas savings.

Uniswap Labs strongly believes that core financial infrastructure should be open and transparent and that the community should govern v4 of the Protocol. The code will be released under a Business Source License 1.1, which limits the use of the v4 source code in a commercial or production setting for up to four years.

The Protocol fee mechanism will also be modeled after v3, with governance able to vote to add a Protocol fee to any pool, up to a capped amount.

Featured image from Unsplash, chart from TradingView.com