None of the information contained here constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financial instrument, to make any investment, or to participate in any particular trading strategy.
Uniswap v4 is coming. If you have been paying attention to any side of crypto twitter, it is likely you have heard about the release announcement for Uniswap’s latest version v4. In this post we will dive into some of the details, the drama and what is coming next for the space’s largest DEX.
- 2018: Uniswap was created by Hayden Adams, a software engineer. Adams was inspired to create Uniswap after receiving an Ethereum grant and personal encouragement from Ethereum’s creator, Vitalik Buterin.
- November 2, 2018: Uniswap V1 was officially announced and launched. It was a simple proof of concept, allowing users to swap ERC-20 tokens directly from a smart contract, removing the need for traditional buy/sell orders.
- May 2020: Uniswap V2 was launched, adding new features like direct ERC20/ERC20 pairs, price oracles, and flash swaps. The upgrade improved the system’s overall performance and versatility.
- September 2020: Uniswap launched its governance token, UNI. 1 billion tokens were issued, with 60% allocated to Uniswap community members, 21.51% to team members and future employees, 17.8% to investors, and 0.069% to advisors. The token allows holders to vote on the future development of the protocol.
- May 2021: Uniswap V3 was launched, introducing concentrated liquidity and multiple fee tiers. This allowed liquidity providers to more efficiently allocate their capital and earn more fees. V3 also introduced the concept of non-fungible liquidity, making each liquidity provider’s position unique.
What is Uniswap v4 all about?
Uniswap v4 takes the abstraction of liquidity provision and trading one step further. Where as v3 allowed any one to create custom ranges and therefore allowed any liquidity curve to be represented in the system, Uniswap v4 will allow even more customization with its key feature: hooks.
In addition there are a host of new features that will make trading and liquidity provision more gas efficient.
Hooks will allow other contracts to interact with liquidity pools during different phases of a swap lifecycle. In the Uniswap v4 whitepaper, the team suggests a number of possible use cases, but the design space seems quite large.
Developers have suggested that hooks will allow limit orders, time weighted average price orders, pools with dynamic fees, and possibly even MEV resistance.
While it remains to see what people will build on top of the open system, there is already a lot of chatter about the possibilities.
Uniswap v4 will be built as a singleton contract. This means that all pools and token swaps will interact with just a single address. Where as Uniswap v3 maintained the factory and pool model from earlier versions, the Uniswap v4 contract will live at a single address.
The exact gains from this are still being calculated as the code is not final, but the singleton contract architecture will reduce swaps and make arbitrage and other pricing flow even cheaper for bots and traders alike.
A fee switch?
The deployment of Uniswap’s fee switch has been a contentious part of recent governance discussions, v4 adds another variable to the mix with additional parameters that can one day drive revenue to the Uniswap treasury. In addition the the typical pool fee switch, dynamic fees enabled by hooks and various other possible additional fees can have a rake value that passes back to Uniswap.
It remains to be seen if the Uniswap community can even align on what to do about fee switches on the vast array of pools in v2 and v3, so it only makes sense the option will be kept available for the next version as well.
An operating system for DEXs?
Taken together, the direction of Uniswap v4 seems to continue to move up the value chain. The composable nature of the pools and hooks, along with the gas savings, suggests that Uniswap v4 is positioning to be a kind of “operating system” for all distributed exchanges. For example, our engineers have been looking into how some of the functionality of SIZE TWAP orders, limit orders and even MEV-resistant systems could be built on top of Uniswap v4 with hooks. Already many builders have started to provide comments and propose features that can be implemented based on the new Uniswap v4 architecture.
What’s Next for Uniswap v4
With the release announcement and the code base published for review, the Uniswap team has made an open call to builders to weigh in on their design decisions. We can expect some things in the code and implementation to change before a production version is released, and many developers are already hard at work on designing future integrations.
As with v3, the next version of Uniswap will be released under a business license, and direct forks will be discouraged by this.
The Uniswap v4 playground will be vast, and it remains to be seen if traders and LPs will take advantage of all the possibilities inherent in the system. Like with v3, it may take some time to catch on but we will all be keeping a close eye on the progress and launch of the next version of Uniswap.