Uniswap protocol, the largest decentralized exchange (DEX), is the shining star of the Ethereum blockchain. Uniswap’s dominance in the DEX sector has been made possible thanks to a series of upgrades that significantly improved the platform. These upgrades optimize the protocols and expand the platform’s capabilities while maintaining its preeminent position in the decentralized finance (DeFi) space.
This article will discuss the Uniswap V4 upgrade, the latest upgrade for the protocol, and the key benefits and innovations it will bring to the larger DeFi space.
What is Uniswap V4?
Uniswap V4 is a major update on the Uniswap decentralized exchange which is set to revolutionize the DeFi sector by introducing new and improved features on the protocol. Uniswap V4, which is still in development, is built by the broader Uniswap community. It is slated for launch in the third quarter of 2024. Once launched, Uniswap will have exclusive access to their V4 innovations for four years, but all the code will be made open-source eventually. V4, the fourth major upgrade to the Uniswap protocol, aims to reduce gas costs and make liquidity pools more customizable.
Key benefits and innovations of Uniswap V4
The Uniswap V4 brings several benefits and innovations to the Uniswap protocol and the automated market maker (AMM) system. Let’s look at some of these benefits.
Hooks and customized pools
One of the most impressive innovations of the Uniswap V4 is “hooks.” Essentially, hooks are customizable smart contracts that can be added to liquidity pools. This allows customization like never before, empowering developers to implement specific functionalities at different points in a pool’s lifecycle, before or after swaps or liquidity changes. These innovative contracts ensure dynamic fees and integrate Uniswap liquidity with other protocols, promoting flexibility and high customization.
Singleton contract
Uniswap V4 also brings the Singleton contract that consolidates all token pairs into a single smart contract. So, instead of a contract for every liquidity pool, a single contract would govern all pools. Singleton’s contract will reduce gas fees significantly by eliminating unnecessary gas expenses tied to traditional pool creation. With the introduction of singleton contracts, creating new pools will become 99% cheaper compared to Uniswap V3.
Flash accounting
Uniswap V4 introduces a “flash accounting” system that allows users to chain multiple actions in one transaction, like swapping and adding liquidity. It tracks token balances throughout the transaction and ensures all debts are settled. If not, the transaction is reversed. This would cut gas costs and boost efficiency.
Native ETH support
Uniswap V4 reintroduces native ETH in trading pairs which was temporarily removed in V2 due to implementation complexity and concerns over liquidity fragmentation. With the implementation of the Singleton Contract and flash accounting, users can directly pair with native ETH, eliminating the need for WETH (Wrapped ETH). However, the WETH pair will still be supported.
Community-driven development
A community of developers is building the Uniswap V4. From the beginning, the protocol has involved the Uniswap community in its decisions with many issues, pull requests, and other ideas contributed by users. The protocol highlights the importance of community engagement and the involvement of the global community in shaping the future of automated market makers (AMMs).
Understanding V1, V2, and V3 of Uniswap Protocol
The Uniswap Protocol has four versions: V1, V2, V3, and V4. For perspective, we will discuss the first three versions of the protocol.
Uniswap V1
Uniswap V1, the first iteration of the Uniswap protocol, was launched in November 2018. It was launched by Hayden Adams, a former mechanical engineer, to facilitate decentralized and automated token exchanges on the Ethereum blockchain. His innovation revolutionized the DeFi landscape by launching an automated market maker (AMM) model for token swaps on Ethereum.
Uniswap V2
The next update for the Uniswap protocol came in May 2020, bringing several innovations to the Uniswap protocol. V2 introduced enhanced liquidity provision, reducing impermanent loss, and providing more flexibility for traders and liquidity providers. The V2 significantly improved the protocol’s flexibility and allowed for a broader range of trades.
Uniswap V3
Uniswap V3, the version on which the current protocol functions, was launched in May 2021, introducing several innovative features. Uniswap V3 brought concentrated liquidity, allowing liquidity providers to focus their funds on specific price ranges instead of the entire range.
Uniswap V4 release date
Uniswap V4 protocol is broadly set to be launched in Q3 2024. The Uniswap Foundation said in early 2024 that the timeline for the V4 launch depends on the Ethereum Dencun hard fork. With the successful implementation of the Dencun hard fork on the Ethereum mainnet in March 2024, all that’s left is a comprehensive security audit of the protocol starting from Dencun.
Who governs Uniswap V4?
The Uniswap V4 is governed by the Uniswap Labs, like its earlier versions – V1, V2, and V3. Uniswap Labs is the company behind the Uniswap Protocol. However, Uniswap Labs is not the only driving force behind V4, as it is built alongside the Uniswap decentralized autonomous organization (DAO) and the Uniswap community. The Uniswap community consists of UNI token holders who suggest new ideas to develop the protocol development and vote on important decisions.
Conclusion
Since its launch in 2018, the Uniswap Protocol has undergone several iterations, revolutionizing not just the DeFi sector, but the whole decentralized marketplace. Uniswap Protocol’s current version V3 is well-regarded as it provides efficiency, flexibility, and profitability for users and liquidity providers. With the V4 slated to bring more promising innovations, Uniswap is set to cement its position as the market leader in the DeFi space. The newest update would attract more users and liquidity providers while leading the DEX sector. Its native token, UNI, which has seen over 120% growth in the past year, is also expected to surge once the V4 launches later this year.
