Uniswap Labs, the team behind the leading decentralized exchange by trade volume, has published the draft code for Uniswap’s next iteration, dubbed v4.
Users will be able to customize Uniswap v4 liquidity pools to selectively utilize the protocol’s technical capabilities to keep the fees associated with simpler transactions low. The protocol also introduces several new features, including on-chain limit orders, automated compounding of liquidity provider (LP) rewards, and dynamic fees.
“Uniswap v3 took a powerful, opinionated approach to liquidity provision, balancing an incredibly complex tradeoff space,” said Hayden Adams, Uniswap’s founder. “New features come at the expense of higher fees and code complexity… Our vision with Uniswap v4 is to allow anyone to make these tradeoff decisions.”
The protocol’s UNI governance token has been rallying since dropping a teaser yesterday.
As of 0030 ET, UNI was up more than 7% in the past 24 hours, making it the ninth-best performing asset among DeFi’s 100-largest tokens.
Uniswap Labs plans to spend months polishing the protocol based on feedback received from the community and is urging developers to scrutinize its code.
Business Source License
The release comes less than three months after the two-year Business Source License (BSL) for Uniswap v3 expired on April 1, allowing anyone to fork and reproduce the exchange’s code in a commercial or production setting.
Uniswap v4 will be subject to a four-year BSL. However, Uniswap governance can make exemptions and authorize the code’s deployment by third parties. In March, UNI holders strategically green-lit v3 deployments on Avalanche and BNB Chain in a bid to front-run rivals planning to fork the code following the expiry of its BSL.
Uniswap v3 is the leading decentralized exchange by trade volume, according to CoinGecko. More than $800M worth of trades were executed on its Arbitrum and Ethereum deployments over the past 24 hours – more than four times its closest rivals.
Uniswap is also the fifth-largest DeFi protocol with a total value locked of $3.9B.
Enhancements To Uniswap v3
Uniswap v3 launched in April 2021 and significantly improved the efficiency of DEX-based trading with the introduction of concentrated liquidity.
The feature allows LPs to set specific price ranges within which their assets will be mobilized to settle trades and earn fees. Concentrated liquidity improves capital efficiency and can minimize divergence loss while bolstering LP returns by increasing capital circulation.
Uniswap v4 builds on concentrated liquidity by introducing hooks. Hooks would allow users to deposit “out-of-range” liquidity into DeFi lending protocols, generating returns for LPs even when their assets are not getting used by the protocol.
V4 pools can also act as a time-weighted average market maker (TWAMM), allowing traders to gradually execute large orders over a given time frame.
Balancing Low Fees With Expansive Functionality
Uniswap v4 introduces “hooks,” which are customizable smart contract “plugins” that allow users to decide how swaps, pools, fees, and LP positions execute and interact on the exchange.
Uniswap’s developers placed an emphasis on minimizing gas fees wherever possible when designing v4. The new iteration will hold all liquidity pools in a single contract, reducing the transaction costs associated with creating new pools and executing trades across multiple pools.
V4 also introduces “flash accounting” to lower fees, meaning internal transfers are executed using net balances rather than moving assets with each swap. Uniswap said it expects to realize further gas savings when EIP-1153 goes live alongside Ethereum’s next major upgrade, Dencun.
Uniswap v4 can also support trades using native ETH, rather than its wrapped ERC-20 counterpart, further reducing fees for Ether traders.
