Uniswap releases code for version 4, enabling the creation of new categories of liquidity pools.
The new version has “hooks” that enable more customizable settings, but it won’t be adopted until the community offers more feedback.
According to Hayden Adams, the creator of Uniswap, in a blog post on June 13, Uniswap Labs has released a draft of the code for Uniswap V4. The fresh code includes “hooks” or “plugins” that let developers design custom liquidity pools.
By volume, Uniswap is the biggest decentralized cryptocurrency exchange in the world. The latest version, called V3, was released on May 4, 2021.
When V4 is implemented, the “hooks” functionality will enable developers to add numerous new innovations to the exchange, including on-chain limit orders, automatic deposits to lending protocols, automatically compounded liquidity provider (LP) fees, and many more.
The first step in introducing a new version of Uniswap is to release the source code. The team currently plans to speak with Uniswap users and iterate on this fundamental code over time. When there is sufficient agreement on a final version, V4 will be publicly available, although earlier versions will continue to be supported.
The purpose of Uniswap V4, according to Adams’ post, is to “create a way for pool deployers to introduce code that performs a designated action at key points throughout the pool’s lifecycle — like before or after a swap, or before or after an LP position is changed.”
Deployers will be able to construct time-weighted average market makers (TWAMMs), for instance, which let users sell huge sums of cryptocurrency gradually in smaller batches. This could aid traders in avoiding negative price changes or being frontrun by EVM bots. Additionally, on-chain limit orders will be feasible since pools will be able to implement logic that would allow them to fill an order only when a token reaches a specific price.
Other “hooks” examples include code that can lend out goods when a specific pool isn’t in use or redeposit fees back into an LPs pool.
Sara Reynolds, an engineer at Uniswap Labs, stated that the new version’s intrinsic customizability will enable automated market maker (AMM) exchanges like Uniswap to grow more quickly than ever before:
“In V4 what we really start to see is sort of this primitive for customized logic[…]and that’s really exciting because I think it will really start to evolve AMM innovation quite fast,”.
This sentiment was also expressed by Bridget Frey, Head of Communications at Uniswap Labs, who said, “Right now, other people have to construct new AMMs to undertake a lot of this job. In order to create your project with a hook contract on top of Uniswap’s security and liquidity, you will now be able to do it in a way that should make innovation faster and simpler for all kinds of projects.
Decentralized exchanges recently experienced a surge in new users. Following the United States Securities and Exchange’s lawsuit against their centralized rivals, Binance and Coinbase, for allegedly breaking securities laws, the top three DEXs saw a 444% increase in volume.
Even though the SEC also tried to broaden the definition of “exchange” to include decentralized ones, this surge however took place. Decentralized exchanges do not meet the definition of an “exchange” as it is used under securities laws, according to the cryptocurrency venture capital firm Paradigm.