Leading Decentralized Exchange (DEX) protocol Uniswap announced its upgrade to Uniswap v4 on Tuesday, bringing a host of customizable features to the protocol.
The team also open-sourced the protocol’s draft code to invite anybody to build within its ecosystem.
Uniswap v4: What’s Inside?
As shared by Uniswap Labs, the upgrade’s primary innovation is the inclusion of “hooks,” described as “contracts that run at various points of a pool action’s lifecycle.”
In Uniswap, every liquidity pool has a lifecycle during which a default fee tier is created, liquidity is added and removed, and users swap tokens.
Hooks allow for more customizable liquidity within the pool by specifying code to take action at specific points of the lifecycle, such as before or after a swap or LP position change. In Uniswap v3, the organization said lifecycles were “coupled and executed in a very strict sequence.”
“Developers can innovate on top of the Uniswap Protocol’s liquidity and security to create customized AMM pools through hooks that integrate with v4’s smart contracts,” wrote Uniswap.
The possibilities such contracts present are numerous. Uniswap said it now plans to experiment with a “time-weighted average market maker” (TWAMM), which lets users spread out a buy order over a long period of time. It’s similar to automatic dollar-cost averaging – an investment strategy for spreading out one’s crypto investments over time to defend against temporary volatility.
The Sky is the Limit
Other features include dynamic fees, on-chain limit orders, and depositing out-of-range liquidity into lending protocols.
“But really, the sky’s the limit,” wrote Uniswap. “Because each pool is now defined by more than just the tokens and fee tier, we’ll see pools of all colors, shapes, and sizes.”
Uniswap has already provided a set of sample hook contracts to help developers understand the hook framework, and shared the early implementation of its code.
The cost of pool creation on Uniswap v4 will also be reduced by 99% since all pools live within a single contract.
In April, Uniswap officially passed $1.5 trillion in trading volume.
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Andrew Throuvalas
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