On June 13, Uniswap released the draft code for Uniswap V4, which has caused a strong shock in the industry and has also become a hot topic in the past few weeks. As the largest decentralized exchange platform, Uniswap has consistently held over 50% of the on-chain trading volume, which is more than three times that of its second-largest competitor. The launch of Uniswap V4 will further solidify its position as the largest DEX in DeFi.
In the documents "Our Vision for Uniswap v4" and "Uniswap v4 Core Whitepaper" released by Unwap, Uniswap Labs detailed the introduction of Hooks that enable AMM customization, Singletons that change the account framework and order logic, Flash accounting that greatly reduces gas fees, and Native ETH. These innovative features will bring greater freedom, better liquidity, lower fees, and more choices to DEX. At the same time, it injects a catalyst for DEX, which has long been in a weak position compared to CEX, accelerating DEX's catch-up with CEX in competition and will have a profound impact on the future development of DeFi.
Uniswap leads the development of the entire DeFi industry through innovation
The upgrade of Uniswap V4 has attracted the attention of many institutions. On one hand, the lawsuit by the U.S. Securities and Exchange Commission (SEC against the world's largest centralized exchange (CEX), Binance, has raised concerns about the future development of CEX among industry institutions. This has led to a greater preference for decentralized and censorship-resistant DEXs. Additionally, the most important aspect is that as an industry leader, each version of Uniswap released has set the direction for the development of DEXs, leading to imitation by successors and driving the overall prosperity and development of the entire DeFi ecosystem. Now, let's take a look back at each historical version of Uniswap.
Uniswap V1, launched in November 2018, was the first official version. It provided trading between ERC-20 tokens and ETH and introduced the automated market maker (AMM) model, which automatically adjusts token prices and liquidity, making token trading faster, simpler, and low cost. This approach also inspired many subsequent decentralized exchanges and laid the foundation for the development of the entire DeFi ecosystem. During the same period, projects such as SushiSwap, Curve Finance, and Bancor borrowed from Uniswap V1's approach.
Uniswap V2, launched in May 2020, further provided support for trading between ERC-20 tokens and introduced liquidity mining mechanisms, which incentivize liquidity providers to increase liquidity for trading pairs. With the liquidity empowerment of V2, projects such as Yearn.finance, AAVE, Compound, and Chainlink emerged during the same period.
Uniswap V3, launched in May 2021, introduced concentrated liquidity and the concept of price-variant liquidity range orders (PLC). Concentrated liquidity allows market makers to manage funds more effectively, thereby increasing their profits and efficiency. PLC allows users to set upper and lower price limits for trades, allowing for finer control over transactions. During the same period, projects like Concentrated Liquidity and BarnBridge achieved higher efficiency and returns by utilizing Uniswap V3's concentrated liquidity and PLC features.
Uniswap V4 is the upcoming new version. Although the specific launch time has not been announced, according to information released by the project, Uniswap V4 will be different from previous versions V1-V3. It will not be a technical innovation from scratch but will completely disrupt the infrastructure of DeFi. For example, V4 will provide token pools that can be autonomously created and managed, AMMs with customizable functions through "hooks," and a shift from the Factory/Pool model to a large contract framework. These innovations will further strengthen Uniswap as a decentralized trading platform and bring new changes and opportunities to the entire DeFi ecosystem.
Uniswap has been leading the development of the entire DeFi industry through innovation
The reason why the upgrade of Uniswap V4 has garnered the attention of many institutions is twofold. Firstly, the recent lawsuit by the U.S. Securities and Exchange Commission (SEC against Binance, globally, has raised concerns about the future development of CEX among institutional players. This has led to a growing preference decentralized and censorship-resistant DEXs. Secondly, as the industry leader, each version of Uniswap released has set the direction for DEX development, inspiring imitation from successors and driving the overall prosperity and growth of the DeFi ecosystem. Let's take a look back at the historical versions of Uniswap.
Uniswap V1 was the first official version, launched in November 2018. It facilitated the trading of ERC-20 tokens with ETH and introduced the automated market maker (AMM) model, which automatically adjusted token prices and liquidity. This made token trading faster, simpler, and more cost-effective. Uniswap V1's approach served as inspiration for many subsequent decentralized exchanges, setting the foundation for the development of the DeFi ecosystem. During the same period, projects like SushiSwap, Curve Finance, and Bancor adopted similar approaches based on Uniswap V1.
Uniswap V2, launched in May 2020, expanded support to facilitate trading between ERC-20 tokens and introduced liquidity mining. This mechanism incentivized liquidity providers to contribute liquidity to trading pairs. With the liquidity empowerment of Uniswap V2, projects like Yearn.finance, AAVE, Compound, and Chainlink gained prominence in the DeFi space.
Uniswap V3, launched in May 2021, introduced concentrated liquidity and price-variant liquidity range orders (PLC). Concentrated liquidity allowed market makers to manage funds more efficiently, increasing their profits and efficiency. PLC empowered users to set upper and lower price limits for trades, offering finer control over transactions. During the same period, projects like Concentrated Liquidity and BarnBridge achieved enhanced efficiency and returns by leveraging Uniswap V3's concentrated liquidity and PLC functions.
Uniswap V4 is the upcoming version, although the specific release date has yet to be announced. According to the information released by the project team, Uniswap V4 will differ from previous versions (V1-V3) not being a groundbreaking technological innovation from scratch. Instead, it aims to comprehensively disrupt the infrastructure of DeFi. For instance, V4 will introduce features such as the ability to autonomously create and manage token pools, AMMs with customizable functions through "hooks," and a shift from the Factory/Pool model to a large contract framework. These innovations will further solidify Uniswap's position as a decentralized trading platform and bring about transformative changes and opportunities for the entire DeFi ecosystem.
Uniswap V4 may become an opportunity to solve the challenges faced by DEXs
In the digital asset trading market, CEX (Centralized Exchanges) and DEXs (Decentralized Exchanges) are the two main exchange models. Due to issues such as lack of liquidity, poor user experience, high trading fees and costs, DEXs have long been struggling, with CEXs dominating the majority of the digital asset trading market. With the rapid development of DeFi, the challenges faced by Ds have gained increasing attention. In this context, the release of Uniswap V4 could be an opportunity to address these challenges. Through solutions, Uniswap V4 plans to improve the situation of DEXs from four aspects. Once successful, it will lead more institutions to participate and jointly solve the challenges faced by DEXs.
Improving liquidity: Liquidity is one of the key issues for DEXs. Uniswap V4 enhances the customizability and liquidity of DEXs by introducing features such as Hooks and internalized MEV (Miner Extractable Value) profit allocation to LPs (Liquidity Providers). Hooks allow anyone to deploy liquidity pools using custom contracts, making Uniswap's more composable and scalable. The internalized MEV profit allocation to LPs incentivizes more LPs to participate in providing liquidity on Uniswap, thus enhancing liquidity.
Enhancing user experience: Uniswap V4 introduces the TWAMM (Time-Weighted Average Market Maker) algorithm and limit order functionality to improve price discovery efficiency and users' trading experience. The TWAMM algorithm calculates prices based on time-weighted averages, reflecting more accurate market prices. The limit order functionality allows users to set upper and lower price limits, providing better control over trading risks. These features can improve user experience and attract more users to participate in DEX trading. Additionally, deploying liquidity pools using custom contracts through Hooks can meet users' diverse needs and greatly enhance user experience.
Reducing trading fees: Trading fees are one of the most important factors for users when choosing an exchange. Uniswap V4 reduces trading fees through mechanisms such as the internalized MEV profit allocation to LPs and flash accounting. The internalized MEV profit allocation to LPs can increase LPs' income, thereby reducing users' trading fees. Flash accounting can reduce the costs of frequent trading, providing users with lower transaction costs and higher efficiency.
Improving cost efficiency: Uniswap V4's Singleton architecture sets all LP contracts as a single contract, reducing gas fees for creating LPs and multi-hop trades (cross-pool routing trades), and greatly improving the efficiency of deploying contracts. Combined with flash accounting to reduce the costs of frequent trading, Uniswap V4 helps users achieve maximum benefits or value with minimal costs, while also providing a better foundation for the sustainable development of DEXs.
Summary
Uniswap is one of the key pioneers in the DeFi industry, constantly introducing innovative mechanisms to drive the development of the entire industry. Uniswap V4, as the culmination of these efforts, is a significant innovation for the DeFi and crypto industry as a whole. Uniswap V4 provides users with more freedom, higher liquidity, lower fees, and more enhanced and convenient services. These advantages make Uniswap V4 a more competitive trading platform and also promote the progress and improvement of the entire DEX industry.
Although there is still a significant gap between DEX and CEX in terms of user experience, fees, and security, this gap is gradually narrowing with the continuous updates and improvements of the Uniswap version. It is believed that in the near future, Uniswap V4 will occupy a more important position in the competition between DEX and CEX, becoming the liquidity growth engine for the DeFi industry and leading the direction of the entire industry's development.
