Uniswap releases draft code for upcoming V4 iteration

Uniswap Labs, the team behind the leading decentralized exchange by trading volume, has released the draft code for the next iteration of Uniswap, called v4.

Users can customize Uniswap v4’s liquidity pools to take advantage of the protocol’s technical features and keep fees associated with simpler transactions low. The protocol also introduces several new features, including on-chain limit orders, automatic compounding of liquidity provider (LP) rewards, and dynamic fees.

“Uniswap v3 took a powerful, opinionated approach to liquidity provision, balancing an incredibly complex trade-off space,” said Hayden Adams, founder of Uniswap. “New features come with higher fees and code complexity… Our vision with Uniswap v4 is to give everyone the ability to make these trade-off decisions.”

The protocol’s UNI governance token is rallying since a teaser was released yesterday.

Uniswap releases draft code for upcoming V4 iteration

As of 0030 ET, UNI is up more than 7% in the last 24 hours, making it the ninth best-performing asset among the 100 largest DeFi tokens.

Uniswap releases draft code for upcoming V4 iteration

Uniswap Labs plans to spend months refining the protocol based on community feedback and urges developers to review the code.

Business Source License

The release comes less than three months after Uniswap v3's two-year Business Source License (BSL) expires on April 1, and will allow anyone to fork and reproduce the exchange's code in a commercial or production environment.

Uniswap v4 has a four-year BSL. However, Uniswap governance may make exceptions and authorize third-party deployment of the code. In March, UNI holders strategically gave the green light to v3 staking on Avalanche and BNB Chain to head off competitors planning to fork the code after its BSL expires.

According to CoinGecko, Uniswap v3 is the leading decentralized exchange by trading volume. In the last 24 hours, more than $800 million worth of transactions were executed on its Arbitrum and Ethereum stakes – more than four times that of its closest competitors.

The story goes on

Uniswap is also the fifth largest DeFi protocol with a total value of $3.9 billion.

Improvements to Uniswap v3

Launched in April 2021, Uniswap v3 significantly improved the efficiency of DEX-based trading by introducing concentrated liquidity.

This feature allows LPs to set specific price ranges within which their assets will be mobilized to transact trades and earn fees. Concentrated liquidity improves capital efficiency and can minimize divergence losses while increasing LP returns by increasing capital circulation.

Uniswap v4 builds on concentrated liquidity by introducing hooks. Hooks would allow users to deposit out-of-bounds liquidity into DeFi lending protocols, generating returns for LPs even if their assets are not used by the protocol.

V4 pools can also act as a time-weighted average market maker (TWAMM), allowing traders to execute large orders incrementally over a period of time.

Balancing low fees with rich functionality

Uniswap v4 introduces “Hooks,” customizable smart contract “plugins” that allow users to decide how swaps, pools, fees, and LP positions execute and interact on the exchange.

When developing version 4, Uniswap developers made it a point to minimize gas fees wherever possible. The new iteration will store all liquidity pools in a single contract, reducing transaction costs associated with creating new pools and executing trades across multiple pools.

V4 also introduces “flash accounting” to reduce fees, meaning internal transfers are executed based on net balance rather than moving assets with each swap. Uniswap said it expects further gas savings when EIP-1153 goes live alongside Dencun, Ethereum's next major upgrade.

Uniswap v4 can also support transactions using native ETH instead of its packaged ERC-20 counterpart, further reducing fees for Ether traders.

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