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Leading Decentralized Exchange (DEX) protocol Uniswap revealed its upgrade to Uniswap v4 on Tuesday, introducing a variety of customizable features to the protocol.
The team has also made the protocol’s draft code open-source, encouraging anyone to develop within its ecosystem.
Uniswap v4: What’s Inside?
According to Uniswap Labs, the main innovation of the upgrade is the introduction of “hooks,” which are defined as “contracts that operate at different stages of a pool action’s lifecycle.”
In Uniswap, each liquidity pool undergoes a lifecycle during which a default fee tier is established, liquidity is added and withdrawn, and users exchange tokens.
Hooks enable greater customization of liquidity within the pool by allowing code to execute at specific moments in the lifecycle, such as prior to or following a swap or a change in LP position. Uniswap noted that in v3, lifecycles were “coupled and executed in a very strict sequence.”
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“Developers can build on top of the Uniswap Protocol’s liquidity and security to create tailored AMM pools through hooks that work with v4’s smart contracts,” stated Uniswap.
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The potential applications of such contracts are extensive. Uniswap mentioned its intention to explore a “time-weighted average market maker” (TWAMM), which allows users to distribute a buy order over an extended timeframe. This concept is akin to automatic dollar-cost averaging – an investment approach for spreading out cryptocurrency investments over time to mitigate temporary volatility.
The Sky is the Limit
Additional features encompass dynamic fees, on-chain limit orders, and the ability to deposit out-of-range liquidity into lending protocols.
“But truly, the sky’s the limit,” stated Uniswap. “As each pool is now characterized by more than just the tokens and fee tier, we will witness pools of all colors, shapes, and sizes.”
Uniswap has already provided a collection of sample hook contracts to assist developers in grasping the hook framework and has shared the initial implementation of its code.
The expense of creating pools on Uniswap v4 will also be decreased by 99% since all pools will operate within a single contract.
In April, Uniswap officially surpassed $1.5 trillion in trading volume.
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