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New Uniswap release: Uniswap V4
Today, Uniswap announced Uniswap v4, presenting a significant leap forward in their platform! New features include limit orders, auto-compounding, Dynamic Fees and TWAMM (Time-Weighted Automated Market Maker)
Uniswap Labs has released a preliminary version of the code for Uniswap V4. This latest iteration introduces “hooks” or plugins that empower developers to construct personalized liquidity pools. Uniswap, as the world’s largest decentralized cryptocurrency exchange (DEX) in terms of volume, had previously launched its V3 version on May 2021, and it has been successfully deployed its BNB Chain support on March 2023.
What is Uniswap?
Uniswap is a growing network of DeFi apps. It is a well-known decentralized exchange (DEX) protocol developed on the Ethereum blockchain at its origin, which operates as an Automated Market Maker (AMM) that enables direct token trading from users’ wallets, eliminating the need for intermediaries.
The protocol’s foundation relies on liquidity pools, a simple and elegant concept utilized by Uniswap for facilitating token swaps. Liquidity providers contribute token pairs, such as ETH and an ERC-20 token to these pools, and receive liquidity pool tokens representing their share of the pool.
Uniswap’s innovative approach disrupts traditional order book systems by utilizing liquidity pools instead. By employing mathematical formulas, particularly the constant product formula, Uniswap determines token prices and executes trades. This formula ensures that the product of token quantities in a pool remains constant. Consequently, when one token is bought, its price increases while the price of the other token decreases.
New Features on Uniswap V4
Hooks
A standout change in V4 is the introduction of hooks, a remarkable innovation. These hooks serve as plugins that facilitate the creation of highly adaptable pools. They open up possibilities for incorporating new functionalities into Uniswap, such as dynamic fees, limit orders, TWAP orders, and more.
Singleton
Another notable addition to V4 is the singleton, which plays a pivotal role. Acting as a single contract housing all the pools deployed on V4, the singleton streamlines trades by significantly reducing gas costs associated with swaps and pool deployment.
Governance
Similar to V3, V4 will operate under the governance of the Uniswap DAO. Additionally, it will feature a protocol-fee switch that UNI token holders can activate on a per-pool basis.
V4 version will enable Uniswap to become a more versatile and adaptable protocol. Developers will have the ability to create hooks and seamlessly build upon Uniswap’s liquidity infrastructure compared to V3. This shift could usher in a new era of creativity and innovation within the realm of decentralized finance (DeFi).
What is this update really about?
Uniswap V4 aims to facilitate the inclusion of code that executes specific actions at crucial stages of a pool’s lifecycle. These actions can be performed before or after a swap, or before or after a change in LP (Liquidity Provider) positions. An example of this is the ability for deployers to create time-weighted average market makers (TWAMMs), enabling users to sell large amounts of cryptocurrency in smaller batches over time. This feature can help traders avoid being front-run by EVM (Ethereum Virtual Machine) bots or experiencing unfavorable price movements. Furthermore, the updated version of Uniswap will allow for on-chain limit orders, where pools can incorporate logic to fulfill an order only when a token reaches a specific price.
Additional examples of these “hooks” include the ability to reinvest fees back into an LP’s pool or lend out inventory when a particular pool is not in use.
Uniswap V4’s increased customizability empowers automated market maker (AMM) exchanges to develop more rapidly by enabling developers to build projects with hook contracts on top of Uniswap’s security and liquidity. This customization is expected to expedite and simplify innovation across many projects.
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