Original title: Uniswap’s Hayden Adams: Q&A on Weathering the Regulatory Storm, What’s Next for DeFi
Original author: Sam Kessler
Original source: CoinDesk
Edit: hiiro
Hayden Adams, CEO of Uniswap Labs, launched Uniswap in 2018, just as Ethereum and the idea of blockchain-based computer code (called “smart contracts”) first began to gain popularity.
The platform brought automated market makers (AMMs) mainstream—tools that allow people to exchange currencies without the use of middlemen—and quickly grew into financial giants. As still the largest decentralized exchange (DEX) in an increasingly competitive space, Uniswap has processed over $1 trillion in transactions across various blockchains.
In an interview with CoinDesk, Adams argued that Uniswap v4, an upgraded version of the platform that Uniswap Labs made available to the public for review earlier this month, will make the platform more decentralized and more powerful than ever before. Adams also responded to concerns about the distribution of power in Uniswap’s governance system and gave his thoughts on the U.S. regulatory crackdown on cryptocurrencies.
Can you tell me a little bit about the plans, vision for Uniswap v4 and how it differs from v3 and previous versions of the platform?
Historically, new protocol versions have been released almost like products, announced when they are almost done. This made sense at the time. But as the Uniswap protocol has grown, it has become important to build it publicly and invite the community to build and contribute to this decentralized protocol with us.
Uniswap v3 is a very strong protocol that has proven itself. Today, on Ethereum, it has about 90% of the market share in on-chain trading and AMMs. But a very reasonable criticism of it is, "Oh, this protocol just came out of nowhere. We were kind of surprised. I don't have time to build my integration, so I have to wait and build it after it's released." So part of the reason is that this is closer to the Ethereum model. On Ethereum, everyone has had months or even half a year to know about the hard fork. All the different projects building on Ethereum have had months to prepare and start building on it and give feedback on the upgrade itself. There is an open process for people to give feedback on the Ethereum roadmap. In the same way, people will be able to give feedback and even contribute code to the next version of the [Uniswap] protocol.
In my opinion, the most important thing about Uniswap v4 is these “hooks”, which expand the functionality of the liquidity pool. Can you explain this whole hooks concept and what it will bring to users?
In fact, when building a project like Uniswap, you will find that there are a lot of trade-offs that need to be made. And hooks are basically the way to customize and modify the liquidity pools within Uniswap. Anyone can create a pool and then choose how to customize it. With hooks, we want to enable people to make these trade-offs themselves and really choose how to make their pools work.
Hooks are really about providing more flexibility and customization. I think that's part of it. I think another aspect of hooks is turning Uniswap into a more expressive platform.
Can you tell me about Uniswap's approach to decentralization, including how the platform is built and how it operates in a permissionless manner so that anyone can create a pool? How does your approach differ from other decentralized platforms?
Decentralization has always been one of our philosophies, and it remains so to this day. Like previous versions of the protocol, Uniswap v4 is essentially a smart contract running on Ethereum. It is an immutable smart contract that cannot be upgraded, is permissionless, open, and does what it says it will do. That is the core part of it.
I think Uniswap V4 may take it to a higher level because it gives people more choice and flexibility and allows for a very strong developer ecosystem to be built on top of it. Although V3 already achieved this in some aspects, with this hook design, not only do we not have control over the system, we don’t even tell you how the pool should work.
Does the whole concept of decentralized governance break down somewhat when a single entity like a16z (crypto-friendly VC firm Andreessen Horowitz) controls so many tokens? Uniswap is by no means an exception in this regard, but are there concerns about VCs and other large entities controlling these initial allocations or accumulating tokens over time?
I think there are many different forms of decentralization. But first of all, I think the most important decentralized aspect within Uniswap is that no one controls the protocol. There is no governance vote that can, for example, withdraw funds from the liquidity pool. There are different types and degrees of decentralization. I think the best form of decentralization is to not require any governance. Real automation. The purest form of decentralization is automation and making mutable things immutable.
The second form of decentralization is economic decentralization, if something can work naturally because economic incentives are created. You can think of liquidity providers and exchangers, they participate in a two-sided market, and there is no need to govern what is going on. It has nothing to do with governance. There is a natural economic incentive to participate in the system. This is also a very important form of decentralization: anyone can participate, and then you have this open market.
Let's talk about the SEC lawsuit against Coinbase and Binance. I want to hear what you think the SEC going after these centralized platforms means for decentralized platforms like Uniswap.
I don't know much about these lawsuits. In general, I think DeFi and decentralized platforms are very different from centralized platforms. They have different characteristics, so I don't have much to add.
Personally, I think I always expect to see more decentralized platforms replace centralized platforms over time. I think things like self-custody, transparency, and provable solvency are fundamental benefits that they can provide.
Binance and Coinbase think about regulation every day. They have hired lobbyists in Washington (and I’m sure other countries) to lobby on their behalf. They have set up legal departments within the company, and engineers and product managers must follow inspections to ensure they are compliant. In your daily work, how does regulation affect your decision-making?
Yes, we obviously have lawyers and make sure everything we do is legal. But overall, my view on the industry is that DeFi is a new industry, and I'm in it because I believe it can provide fundamentally better outcomes for users. If I didn't think it was good for the world, I wouldn't be in DeFi, right? I see DeFi as part of the early internet, where there was a lot of things that needed to be figured out and a set of rules needed to govern the internet. There was a time when there was an open question of whether e-commerce should be legal? Buying things on the internet sounds scary. Or should platforms like YouTube be legal? "Oh, how do we deal with trademark infringement?" So the DMCA (Digital Millennium Copyright Act) was born.
Overall, I think this industry is here to stay. This technology is here to stay. The U.S. is probably behind — almost certainly behind other countries. We've seen Europe, for example, in the U.K. and France, where people are starting to get more directly involved in DeFi and thinking about how to set the rules for it, and I think from what I've seen, they're thinking about it very seriously. The U.S. seems to be way behind in that regard.
I would also point out that in the crypto space, people sometimes focus a lot on what happens in the U.S., but over 70% of Uniswap users are outside the U.S. My hope at this point is that other countries make more progress and the U.S. learns from them, rather than the U.S. leading the way.
Cryptocurrency is in a downturn. Decentralized platforms are still seeing a decline in volume relative to a year ago, two years ago. Are you nervous about the future of decentralized finance given the regulatory crackdown and retail investors fleeing these platforms? Or do you think this is just a normal cycle, we are in a bear market now, and there will inevitably be another bull market?
My measure of progress has never been limited to price. To me, progress means the state of the industry and the use of users. In my measurement criteria, the creation of basic value and technological innovation have been growing continuously.
Even though there is a lot of noise and hype in this industry at times, and there have been a lot of notorious scams over the past year, I would say that the ones that go bust are often the ones that were already broken. They are highly centralized projects that did a lot of marketing. The real DeFi has weathered the storm in my opinion. MakerDAO, Compound, Uniswap, all of these protocols have handled this market cycle very well operationally.
So that's a very strong sign - the things that went bankrupt were the ones that were most similar to what we were trying to replace. The projects that were highly centralized, off-chain, looked like hedge funds with collateralized loans that weren't secured on-chain, etc., they went bankrupt. Not Uniswap.
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