As an important participant in the DeFi field, Uniswap is far ahead of the rest. It not only steadily occupies the top spot in the Dex (decentralized exchange) market, but also plays a vital role in promoting the progress and improvement of the industry. On June 13, 2023, the Uniswap V4 code draft was released. According to industry insiders, Uniswap V4 will be launched soon. Before that, let's take a deep look at the innovations of the V4 version.
Hooks: V4 transactions are more free
Hooks is a smart contract in Uniswap V4, which can be understood as a plug-in on V4. It allows developers to call external contracts to perform specified operations at specific points in the life cycle of the liquidity pool (such as addition, adjustment, deletion, exchange, etc.), thereby realizing dynamic fees, on-chain limit orders, and time-weighted average market makers (TWAMM) to disperse large orders.
In other words, Uniswap V4 has become a customizable liquidity pool platform, on which developers can develop various new functions that are more suitable for the development of their own projects. While promoting the liquidity of the project, it also prospers the development and creation of projects within the ecosystem.
Specifically, a fund pool such as ETH-USDT has a complete life cycle including pool creation, adding liquidity, removing liquidity, and pre/post swap transactions. In previous versions, each operation was coupled and must be executed strictly in sequence, but in V4, users have more room for operation within a life cycle and can customize more functions. For example, users can use Hooks to create a fund pool with dynamic fees that change according to market conditions, rather than pre-set and static exchange fees.
At the same time, traders can also form more diverse orders through Hooks. Decentralized exchanges (DEX) all automatically complete transactions and do not support the chain limit order function. However, with UniswapV4, traders can set an ideal price for buying and selling based on their own judgment of the market. Traders can buy cryptocurrencies at a lower price or set a higher price to sell cryptocurrencies. In addition, the TWAMM (weighted average market maker) function is implemented through Hooks, which can help traders execute large orders more efficiently. TWAMM gradually disperses large orders to minimize price impact.
This unlimited customization is conducive to depositing idle liquidity into lending agreements or promoting cross-chain liquidity. In short, developers can create more complex and customized trading strategies and applications based on the core functions of Uniswap V4.
Singleton mode: V4 transactions are more efficient
In Uniswap V3, a new contract is deployed for each liquidity pool. For example, the assets of the USDT-ETH pool are placed in contract A and the USDT-UN is placed in contract B. If you want to exchange ETH for UNI, you need to complete an exchange in contract A and then another exchange in contract B. Multi-step transactions need to go through multiple contracts and consume multiple gas transactions.
The Singleton model is used in the design of Uniswap V4, which enables all fund pools to be in one contract. Therefore, when exchanging transactions between different asset pools, only one gas fee is required, which saves a lot of fuel costs. According to Uniswap estimates, Uniswap V4 can reduce the fuel cost of creating a fund pool by 99%.
At the same time, through the singleton mode, Uniswap V4 can manage its internal resources and status more efficiently, improving the overall performance and stability of the system.
Lightning accounting system: V4 transactions are more energy-efficient
Uniswap V4 introduces flash accounting, which provides temporary memory space for traders through off-chain preprocessing and on-chain confirmation. For example, in V3, if a transaction requires 3 steps, each step will consume a certain amount of gas fees, which not only causes on-chain transaction congestion, but also greatly increases the extra costs for traders. However, in V4, intermediate operations can be temporarily stored with the help of the flash accounting system without consuming gas fees.
It can be seen that the lightning accounting system reduces transaction delays and costs, allowing transactions to be confirmed on the chain more quickly. This optimization provides users with a smoother transaction experience, reduces transaction costs, improves transaction efficiency, and enhances users' transaction experience.
Expansion of DEX ecosystem
As we all know, in order to facilitate transactions, the native ETH trading pair was removed in Uniswap V2/V3. Most transactions require ETH to be packaged as WETH before the transaction and additional gas fees must be paid. Uniswap V4 restores the native ETH exchange function, which is of great significance to the development of the decentralized exchange ecosystem. In addition to the obvious reduction in transaction costs, the focus is on promoting liquidity between ETH and other tokens.
At the same time, Uniswap V4 introduced a donation function, allowing liquidity providers to donate to specific projects or communities while providing liquidity. This innovative feature enhances community participation and project support, and promotes the fundraising and development of decentralized projects.
It is reported that as Uniswap continues to iterate and stabilize in the ranks of the leading DEX ecosystem, V4 has added a governance democracy and transparency mechanism. The new voting mechanism and increased community participation make Uniswap's governance more in line with the interests and expectations of the community. This improvement helps to improve the stability and sustainability of the decentralized exchange ecosystem.
In short, by introducing more systems such as Hook, UniswapV4 extends new composable and scalable functions such as weighted average market makers, dynamic fees, on-chain price caps, and out-of-range lending agreements, thereby improving user experience, reducing transaction fees, improving cost efficiency, and improving platform liquidity. This will greatly improve Uniswap's competitiveness while promoting the development of the entire DEX and DeFi markets, and gradually possess the technical capital and ecological capital to compete with CEX centralized exchanges.
Pros and Cons of the V4 Ecosystem
Based on the upgrade of UniswapV4, developers can innovate on the basis of Uniswap's liquidity and security, and customize richer and more distinctive liquidity pools. Therefore, some industry insiders believe that V4 is mainly more beneficial to project parties, who can develop various projects and gameplay more freely. But in fact, it is not the case. The construction and competition of a diversified ecology is tantamount to putting higher requirements on project parties to develop projects. Project parties need to pay more attention to the quality and innovation of the project to attract users' attention and investment.
DeFi is the cornerstone of cryptocurrency liquidity. Uniswap V4 will provide unprecedented openness for the DeFi track and realize a freely matched decentralized trading process, which means more opportunities and possibilities for the current sluggish market.
Only when the market is revitalized can investment make sense. The improvement of market efficiency and the reduction of transaction costs of Uniswap V4 provide investors with more investment opportunities and profit space. While increasing the enthusiasm of existing users, attracting more incremental users is the trump card for the sustainable development of the market. Uniswap V4's functional experience is closer to CEX, and it has the orthodoxy of decentralization, providing traders with lower costs and more optimized services, thus it is expected to gain part of the market share of CEX.
However, it is undeniable that DEXs including Uniswap V4 still have shortcomings in terms of speed and efficiency. For the vast majority of traders, there are questions such as whether to bear a certain degree of contract security in order to enjoy the freedom of decentralization.
Industry insiders said: At present, the Uniswap V4 version cannot effectively solve these problems. Only by truly solving the two major problems of efficiency and user experience can DEX replace centralized exchanges.
Conclusion
Since its birth in 2018, Uniswap has been continuously upgraded and iterated. V1 proved the possibility of automatic market makers (AMM), V2 supported transactions between ERC-20 Tokens, and V3 introduced the concept of aggregated liquidity, which greatly improved capital efficiency. V4 adopts Hooks and Singleton mode to solve the challenges of V3 fork licensing and management of centralized liquidity positions, becoming a composable protocol, allowing LP to better enjoy greater dividends in the era of decentralized finance.
At present, Uniswap V4 has improved the efficiency and security of transactions, reduced transaction costs, and increased the freedom and efficiency of transactions. Its launch will certainly shorten the gap between DEX and CEX trading platforms, attracting more CEX users to the DEX platform, which has a profound impact on the decentralized exchange ecosystem and the cryptocurrency market. At the same time, Uniswap V4 provides developers with greater operability and flexibility, promoting the innovation of decentralized exchange technology and the expansion of the ecosystem. It can also inspire a wave of creativity at a time when DeFi urgently needs innovation, and create DeFi projects that are more in line with industry development and user needs.
V4 is not the end of Uniswap. The entire DEX ecosystem is just on the acceleration belt. Struggling hard and looking far ahead, this will surely be the unchanging future of Uniswap. #UniswapV4 #DeFi
