Uniswap V4 will come!
The Revolution and Customization in the DEX space
The versatility of Uniswap V4! 💎s
Introduction:
Uniswap V4 vs. Uniswap V3
Uniswap V4 represents a significant evolution in decentralized exchange protocols, building upon the foundation laid by its predecessor, Uniswap V3. While V3 adopted a powerful and opinionated approach to liquidity provision, V4 introduces a groundbreaking concept of “hooks” that empowers users and developers to make critical tradeoff decisions. This appendix explores the features of Uniswap V4 and compares them with Uniswap V3.
Hooks & Custom Pools in Uniswap V4
In Uniswap V4, liquidity pools follow a lifecycle involving the creation of a pool with a default fee tier, addition or removal of liquidity, and token swaps. Unlike V3, where these events were tightly coupled and followed a strict sequence, V4 introduces “hooks.” Hooks are contracts that execute specific actions at key points during a pool’s lifecycle, providing unprecedented flexibility and customization.
More then…Developers can now create customized AMM pools by integrating hooks with V4’s smart contracts.
Lifecycle Events Customization:
Hooks enable customization at various key points in the lifecycle of a Uniswap liquidity pool. This includes events such as pool creation, token swaps, adjustments to liquidity positions, and more.
Decoupling Lifecycle Events:
Unlike previous versions where lifecycle events were tightly coupled and followed a strict sequence, Uniswap V4’s hooks allow for the decoupling of these events. Developers can insert custom code before or after specific actions, providing greater flexibility.
Customization for Different Pools:
Each liquidity pool in Uniswap V4 can have its own associated hook smart contract. This means that different pools can have distinct customizations based on the specific needs and strategies of the pool deployer.
Innovation and Experimentation:
Hooks open the door for experimentation and innovation by allowing developers to create novel features that extend beyond the core logic of Uniswap. The framework encourages the exploration of new ideas, strategies, and functionalities.
As we said: Hooks are plugins that allow you to customize the interaction of pools, swaps, fees and LP positions. It will be very interesting and unique that developers will be able to build on the liquidity and security of the Uniswap protocol to create custom AMM pools using hooks that will be integrated into the V4 smart contracts.
Btw…In Uniswap V3, a new contract is provided for each pool, which unfortunately makes pool creation and multi-pool swaps more expensive. In V4, all pools are held in a single contract, resulting in significant gas savings as swaps no longer require transferring tokens between pools held in different contracts. Initial estimates show that V4 reduces pool creation gas costs by 99%. Hooks open up a world of endless options and Singleton (to Singleton more below) allows you to efficiently route through all the options.
As uniswap itself says: “But really, the sky’s the limit”
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 V4’s core logic, like V3, is non-upgradeable. While each pool can use its own hook smart contract, hooks can be limited to only specific permissions determined at pool creation.
However, EIP-1153 Transient Storage must be included in the next Ethereum hard fork before Uniswap V4 can use the EIP-1153 to reduce network costs! This EIP-1153, considered part of the Ethereum Cancun hardfork, will bring even greater gas improvements and cleaner contract designs for a wide range of applications.
That remains to be seen!👍
A quick insight into TWAMM!
Time-Weighted Average Market Maker (TWAMM) is a concept introduced in Uniswap V4 as an experimental use case for customizing AMM pools using hooks. TWAMM introduces a time-weighted mechanism to set prices within the liquidity pool. Let’s delve into how TWAMM works in the context of Uniswap V4:
Time-Weighted Component:
TWAMM incorporates a time-weighted aspect in determining the average price of assets in the liquidity pool.
Prices are not only influenced by the instantaneous market conditions but are also influenced by a weighted average over a specific time period.
Price Setting Mechanism:
Traditional AMMs like Uniswap V2 or V3 determine prices based on the ratio of the quantities of assets in the pool.
If we understund it Right, then TWAMM, on the other hand, might use a more complex formula that considers the historical prices and trading activities over a predefined time window.
Dynamic Price Adjustment:
The time-weighted nature of TWAMM allows for dynamic adjustments of prices based on recent market trends.
Prices are not solely determined by the current supply and demand but also take into account the historical behavior of the assets.
Adaptability to Market Conditions:
TWAMM is designed to adapt to varying market conditions by considering the evolution of prices over time.
This adaptability could result in more stable prices or prices that reflect a longer-term view of market trends.
Implementation via Hooks:
In Uniswap V4, TWAMM is implemented using hooks, which are custom plugins that introduce code at specific points in the liquidity pool’s lifecycle.
Developers can define the specific logic for TWAMM within the hook, specifying how prices are calculated, adjusted, and influenced by time-weighted factors.
Customization and Experimentation:
TWAMM is part of Uniswap V4’s approach to allowing developers to experiment with and customize AMM pools beyond the standard features.
Pool deployers can utilize TWAMM hooks to create liquidity pools with unique price-setting mechanisms that cater to specific trading strategies or market conditions.
Singleton Architecture and Efficiency
Uniswap V4 introduces a “singleton” contract architecture, housing all pools within a single smart contract. This not only reduces costs but also ensures efficient routing across multiple pools. The combination of hooks and singleton architecture creates a powerful platform for fast and safe pool customization, establishing Uniswap V4 as a leading decentralized exchange protocol.
A new “flash accounting” system complements the singleton architecture. In Uniswap V4, instead of transferring assets in and out of pools at the end of each swap as in V3, this system transfers only on net balances, resulting in a far more efficient system with additional gas savings.also ensures efficient routing across multiple pools.
Thanks to the expected efficiency of singleton and flash accounting, fee tiers no longer need to be capped. Pool creators can set them to the level that makes them most competitive or customize them with a dynamic fee hook. V4 will also bring back support for native ETH, allowing for additional gas savings.
The combination of hooks and singleton architecture creates a powerful platform for fast and safe pool customization, establishing Uniswap V4 as a leading decentralized exchange protocol.
Governance and Licensing
As Uniswap labs has always believed, the core financial infrastructure should be open and transparent. They also believe that the Uniswap community — the people and teams who support, use and build on the protocol — should govern V4 of the protocol in the same way as previous versions.
The code will be distributed under a Business Source License 1.1, which restricts the use of the V4 source code in a commercial or production setting for up to four years before converting to a GPL license in perpetuity. Uniswap Governance and Uniswap Labs, like V3, can grant license exceptions.
The Protocol fee mechanism will be based on V3. Governance will have the ability to vote to add a Protocol fee to any pool, up to a certain limit. The whitepaper contains additional information on the fee mechanism.
Conclusion:
Uniswap V4 opens the door to a new era of decentralized exchange innovation, allowing for a diverse range of pools with various functionalities. While each pool can utilize its own hook smart contract, the non-upgradeable core logic ensures the protocol’s security and stability. With Uniswap V4, the possibilities are limitless, ushering in a new era of expressive AMM innovation within a unified and efficient ecosystem.
