Uniswap V4: An Innovative Upgrade in the Decentralized Finance Sector

On June 13, a certain trading platform released its V4 version code draft, causing a strong震动 in the industry and becoming a recent hot topic. As the largest decentralized trading platform by scale, this platform accounts for over 50% of on-chain transactions, with trading volume more than three times that of its second largest competitor. The launch of the V4 version will further consolidate its leading position in the Decentralized Finance field.

In the published vision document and white paper, the platform details several innovative features: Hooks that enable customizable AMM, Singleton that changes the account framework and order logic, as well as Flash accounting and Native ETH that can significantly reduce Gas fees. These innovations will bring greater flexibility, higher quality liquidity, lower transaction fees, and more choices to DEX. At the same time, this injects a shot of adrenaline into DEX, which has long been at a disadvantage, accelerating its pace to catch up with CEX, and will have a profound impact on the future development of Decentralized Finance.

Innovation Leads the Development of the Decentralized Finance Industry

The reason this upgrade has garnered widespread attention is partly due to recent regulatory turmoil that has led industry institutions to worry about the future of CEX, while decentralized and censorship-resistant DEX has gained more favor. More importantly, as a leader in the industry, every version released by this platform has set the direction for DEX development, inspiring imitation by later entrants and promoting the prosperity of the entire Decentralized Finance ecosystem. Let us take a look back at the historical versions of this platform.

The V1 version was launched in November 2018, introducing the automated market maker model for trading between ERC-20 tokens and ETH. This innovation inspired many later DEXs and laid the foundation for the development of the Decentralized Finance ecosystem.

The V2 version was released in May 2020, adding support for trading between ERC-20 tokens and introducing a liquidity mining mechanism. The liquidity empowerment of this version has driven the rise of a number of new projects.

The V3 version was launched in May 2021, introducing centralized liquidity and price limit order features. This allows market makers to manage their funds more effectively, and users can also have more precise control over their trades.

The upcoming V4 version will undergo comprehensive innovation at the DeFi infrastructure level. It will provide token pools that can be created and managed autonomously, an AMM with new features added through "hooking", and the adoption of a large contract framework, among others. These innovations will further strengthen the platform's decentralized characteristics, bringing new changes and opportunities to the DeFi ecosystem.

V4 Version: Four Major Innovative Mechanisms

As an important participant and leader in the Decentralized Finance industry, the platform has played a key role in promoting industry advancement. The V4 version has created an efficient, flexible, and low-cost DeFi infrastructure by introducing innovative mechanisms such as Hooks, Singleton, and Flash accounting, providing users with a better trading experience and more opportunities.

Hooks

One of the core innovations of version 4 is the introduction of the "hooks" mechanism. Hooks are essentially external contracts created and defined by developers to implement trading logic. Developers can call external contracts at specific nodes in the lifecycle of the liquidity pool to execute specified operations, such as creating limit orders before a trade or adjusting trading fee tiers after changes in the liquidity pool positions.

By adding plugin features through Hooks, version V4 has become a customizable liquidity pool platform. Developers can freely design various new features to meet different trading scenarios, deeply binding liquidity with project development. This customizable characteristic can also stimulate community creativity and enhance network effects, making it the underlying infrastructure of the Decentralized Finance ecosystem.

The currently displayed sample Hooks include:

• Time-Weighted Average Market Maker ( TWAMM )
• Dynamic Fees
• On-chain limit order
• Idle Liquidity Lending
• Custom On-Chain Oracle
• Internalization of MEV profit distribution

Singleton

Singleton is a new contract architecture in version V4. Unlike the previous model where each liquidity pool corresponded to a separate contract, Singleton stores all liquidity pools within a single contract. This design significantly reduces the cost and Gas fees for creating liquidity pools, enhancing trading efficiency.

The main advantages of the Singleton architecture include:

• Reduce costs: No need to deploy separate contracts for each liquidity pool.
• Improve efficiency: Achieve multi-hop trading, completing all exchanges in one call.
• Scalability: Easy to add new features, leaving room for future innovations.
• Simplified liquidity position management: Manage positions using addresses for greater efficiency.

Flash Accounting

Flash Accounting( is a new accounting method introduced on a singleton contract architecture. It only calculates transaction fees based on the change in net balance, reducing Gas consumption.

Specifically, the system will check the net balance of the current pool ), the difference in buy and sell volumes (, and calculate the trading fees based on the user's net balance. This avoids calculating all relevant position balances, thereby saving Gas.

Flash Accounting can also improve cross-pool routing efficiency and reduce multi-pool trading costs. Combined with Hooks, it supports more complex integrations and innovations, helping to increase the number of pools.

) Native ETH

The Native ETH support in version V4 allows for direct trading of ETH with other tokens without the need to convert to WETH first. This significantly reduces trading costs and time while improving liquidity.

In terms of specific implementation, the core contract has added a pool specifically for direct ETH trading. During transactions, the system automatically compares the trading volume with the amount of ETH in the pool and calculates the corresponding token quantity. This provides users with a more convenient and efficient trading experience, further enhancing the platform's competitiveness.

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The Opportunity to Solve the DEX Dilemma

For a long time, DEXs have faced issues such as insufficient liquidity, poor user experience, and high transaction costs, resulting in CEXs dominating the market. The release of version V4 may become a turning point in addressing these dilemmas. It improves the DEX situation from four aspects:

Improve liquidity: Enhance the customizability and liquidity of DEX through mechanisms such as Hooks functionality and MEV profit distribution.

Optimize user experience: Introduce TWAMM algorithm and limit orders to enhance price discovery efficiency and trading experience.

Reduce transaction costs: Lower user transaction costs through mechanisms such as MEV profit distribution and flash accounting.

Improve cost efficiency: The Singleton architecture reduces Gas fees for creating LPs and cross-pool transactions, enhancing deployment efficiency.

Summary

As an important cornerstone of the Decentralized Finance industry, this platform continuously introduces innovative mechanisms to promote industry development. The V4 version, as a comprehensive solution, brings users greater freedom, higher liquidity, lower fees, and more convenient services. These advantages not only enhance the platform's competitiveness but also promote the progress of the entire DEX industry.

Although there is still a gap between DEX and CEX in terms of user experience, costs, and security, this gap is narrowing with ongoing improvements. It is believed that in the near future, the V4 version will play a more important role in the competition between DEX and CEX, becoming the growth engine of the DeFi industry and leading the direction of the entire industry's development.

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