Uniswap v4 Whitepaper Released: A New Era of Decentralized Exchange Innovation
The Uniswap v4 whitepaper was released on June 13, 2023, and it represents a major step forward for the decentralized exchange (DEX) protocol. Uniswap v4 introduces a number of new features, including:
Concentrated liquidity: LPs can now deploy liquidity across a range of prices, rather than just a single price. This allows them to earn more fees and reduce impermanent loss.
Custom hooks: Developers can now add custom logic to Uniswap pools. This could be used to implement new features, such as MEV-capture or price oracles.
Single contract: All Uniswap pools are now deployed in a single contract. This reduces gas costs and makes it easier for integrators to build on top of Uniswap.
The release of Uniswap v4 is a major milestone for the DEX protocol. It opens up a new world of possibilities for innovation and makes Uniswap even more powerful and versatile.
Concentrated Liquidity
One of the most significant changes in Uniswap v4 is the introduction of concentrated liquidity. In previous versions of Uniswap, LPs could only deploy liquidity at a single price. This meant that they were exposed to impermanent loss if the price of the asset they were providing liquidity for moved significantly.
In Uniswap v4, LPs can now deploy liquidity across a range of prices. This is done by specifying a range of prices and a maximum amount of liquidity that they are willing to provide. The protocol will then automatically distribute the LP's liquidity across the specified range of prices.
Concentrated liquidity offers a number of benefits for LPs. First, it allows them to earn more fees. This is because the protocol will always charge the lowest possible fee for a swap. Second, it can help to reduce impermanent loss. This is because LPs are no longer exposed to the full range of price movements.
Custom Hooks
Another major change in Uniswap v4 is the introduction of custom hooks. Hooks are small pieces of code that can be added to Uniswap pools. They can be used to implement new features, such as MEV-capture or price oracles.
MEV stands for miner extractable value. It is the profit that miners can earn by frontrunning trades on DEXes. Uniswap v4's custom hooks can be used to implement MEV-capture strategies. This means that LPs can earn a share of the MEV that is extracted by miners.
Price oracles are used to determine the price of an asset. They are a critical part of any DEX. Uniswap v4's custom hooks can be used to implement price oracles. This means that LPs can provide liquidity to pools that are priced using their own oracles.
Single Contract
All Uniswap pools in v4 are deployed in a single contract. This reduces gas costs and makes it easier for integrators to build on top of Uniswap.
Gas is the fee that is paid to miners to process transactions on Ethereum. By deploying all pools in a single contract, Uniswap v4 can reduce gas costs by up to 50%. This is because miners only need to process a single transaction to update all pools.
The single contract design also makes it easier for integrators to build on top of Uniswap. This is because they can interact with all pools using a single API.
Conclusion
The release of Uniswap v4 is a major milestone for the DEX protocol. It opens up a new world of possibilities for innovation and makes Uniswap even more powerful and versatile.