Uniswap V4 raises a question: can DEX (decentralized exchanges) surpass CEX (centralized exchanges)? This is no longer an unattainable imagination.
Unlike Uniswap’s previous optimization efforts in improving liquidity and asset efficiency, Uniswap V4 attempts to become a platform, a true foundation platform for cryptocurrency finance.
This iteration has two most important aspects: Hooks and Singleton.
With Hooks, various interactions with liquidity pools, transactions, fees, and LP positions can be customized. The essence of Hooks is to implement a customizable liquidity pool. Developers can deploy Hooks to achieve DEX scenarios that meet their own needs, and the underlying technology uses Uniswap V4’s large liquidity pool.
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- Uniswap released the Uniswap v4 code draft, introducing customizable liquidity pool functionality.
In other words, Uniswap V4 has become a foundational platform, based on which developers can develop various new functions, such as limit orders (a feature that was previously more characteristic of CEX than DEX), dynamic transaction fees based on volatility or other conditions (unlocks higher incentive possibilities), TWAMM (time-weighted average market maker, which can achieve smoother trading of larger assets), storing liquidity beyond range into lending protocols, customizing on-chain price oracles, automatically compounding LP fees into LP positions, and so on. As developers gain deeper understanding, more Hook cases will be developed based on their own and community needs.
(From the Uniswap official website)
Uniswap’s customization based on its own needs can inspire developers to launch new types of liquidity pools to meet various trading scenarios, deepening the connection between liquidity and the community and the project itself. This alone is beyond the reach of CEX.
Based on Uniswap V4, developers can freely paint, which will greatly stimulate the imagination and creativity of developers and the community, and reach new heights in the deep binding of liquidity efficiency and the project itself. At the same time, it can be foreseen that the incentive for liquidity providers will reach even higher heights.
As Hooks and new functions increase, Uniswap has the opportunity to become the underlying liquidity infrastructure. Uniswap V4 will be embedded in more DeFi ecosystems, greatly increasing its network effects, and ultimately becoming the underlying infrastructure of the entire def.
Originally, the Uniswap protocol used a factory/pool model, with each liquidity pool being a separate contract. This led to a multi-contract, multi-token architecture. However, with the introduction of the singleton contract architecture in Uniswap V4, all liquidity pools are now housed in a single smart contract.
(Image from the Uniswap official website)
The original architecture incurred high gas costs when creating liquidity pools and conducting multi-pool swaps. The singleton contract architecture in V4 reduces these costs by eliminating the need to transfer assets between different contracts for different pools. According to the Uniswap team, this architecture can reduce the gas cost of creating liquidity pools by 99%.
In addition, the singleton architecture also introduces the “flash accounting” system, which differs from V3’s transfer of assets in and out of each swap. In V4, the system transfers assets based on the net balance. Furthermore, EIP-1153’s “transient storage” in the Kankan upgrade is also advantageous for this system and helps further optimize costs.
Finally, in V4, native ETH is reintroduced to the trading pair (previously removed in V2), which also reduces gas costs.
From the current Uniswap V4 gameplay, it is clear that Uniswap not only aims to become the largest DEX, but also a DEX platform that allows more developers and projects to build various custom gameplay on its liquidity platform. This open architecture brings greater possibilities.
As more developers deploy Hooks, more new features emerge, and more composability cases emerge, Uniswap’s network effect and non-replaceability continue to increase. From the perspective of Blue Fox Notes, these efforts will continue to increase Uniswap’s liquidity, making it one of the most influential underlying infrastructures.
Uniswap V4 accelerates the pace of DEX catching up with CEX. Uniswap has the opportunity to become the true infrastructure of crypto DeFi, and even has the opportunity to achieve and surpass the market share of CEX in the next five to ten years.