UniswapV4: Dream Pools Become Reality
Uniswap is often bringing something new to the table. Last time, it was the V3 pools with “concentrated liquidity” that allowed providing liquidity only within specific price ranges. And while it has many advantages, it also makes life hard for LPs for whom it isn't easy to be profitable. That’s why we build the LP strategies, to make their experience better and more profitable.
But Uniswap is preparing a new version — V4 — and it is a pretty big deal.
Completely customizable pools & gas reduction
UniswapV4 builds upon the predecessor V3 and introduces new features like Hooks that enable complete pool customization or Singleton contract & Flash accounting for reduced gas costs.
The new version can fix many issues V3 has — it lacks advanced trading features like streaming swaps or limit orders and makes LPing unprofitable for regular chads.
And most importantly, this means you can build projects directly ON Uniswap 🦄
🪝 It’s all about Hooks
Hooks are essentially built-in smart contracts in the pool that can completely customize the pool. Think of hooks as pool plugins.
By having smart contracts directly in pools, projects can build on Uniswap.
Here are some examples of what hooks can do 👇
💲Trading hooks
- Streaming Swaps / TWAMM (Time Weighted Average Market Maker) which aids in buying assets over time for better rates
- Advanced trading features like Limit orders, Stop loss, Sandwich attack prevention, and more
🌊 LP Hooks
- Dynamic trading fees based on market volatility to increase the LP profit
- In-built position management, removing the dependency on third-party platforms
- Whitelisting, Leveraged LPing, multicoin pools, and more!
👉 Check all hooks that have already been developed (in various depth)
👔 Real-life Hook Applications
To paint a clearer picture, let’s show it on an example 👇
1. A pool optimized for trading and LPing
This pool would aim to offer advanced trading features while enabling LPs a better performance by minimizing LVR (loss versus rebalancing) and IL (impermanent loss).
- Increase the fees during high market volatility
- Offer streaming swaps for the best swap conversion
- Enable limit orders to buy/sell at desired price points
2. The community-driven pool
Protocols might want to have specific community programs. This could let users lock LP tokens in the pool for a certain time, automatically manage the liquidity, and reward the user with incentives in governance rights or other assets
- Provide incentives for locking liquidity
- Give LPs governance rights
- Automate liquidity management
Hooks enable almost endless opportunities and will create many business ideas.
⛽ More Than Just Hooks
V4 will bring more than just hooks. It addresses high gas fees by managing all token pairs in a single contract. This will be especially valuable for more complex swap routes.
Also, there won’t be a need to wrap ETH as the native ETH can be deployed directly.
💡What It Means For DeFi?
What could you expect from UniV4? Here are our expectations 👇
- dApps will start building on Uniswap
Hooks can be as complicated as regular protocols and by building on Uniswap, they can leverage its network and community. - More volume from CEXes
Uniswap will finally offer more advanced trading features, trading will be cheaper, and it will likely attract deeper liquidity. - More profitable LPing
Various hooks will be focused on LP profitability and LP experience. - A flurry of experimentation and chaos
In the beginning, there will be many pools with various hooks and people will be searching for the best (and safest). And there will be a fight for liquidity providers between the pools. And there
🛡️ A Word of Caution
UniswapV4 is still under development and the work on hooks is just starting (we just got a grant to build the first hook POCs). There will be a ton of hooks circulating and it might become hard to know which hooks are “secure”.
Uniswap invests significant resources in auditing V4 and is providing grants for researching hook security and the best practices.
In the early stages of V4, we will likely see a flurry of experimentation and new ideas. And if it hits traction, Uniswap can become THE infrastructure layer for dApps.
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