Uniswap v4: The Next Evolution in Decentralized Trading

Uniswap v4 marks a significant leap forward in the world of decentralized exchanges. Building on the success of its predecessors, this new version introduces game-changing features that aim to improve efficiency, flexibility, and user experience.

From custom hooks to gas optimizations, Uniswap v4 addresses many of the limitations found in earlier versions.

What’s New in Uniswap v4?

The most striking change in Uniswap v4 is its architecture. Unlike previous versions that used separate contracts for each pool, v4 employs a singleton design—a single contract that manages all pools. This approach makes creating new pools 99% cheaper and simplifies interactions across multiple pools.

Hooks: Customization Like Never Before

Hooks are perhaps the most exciting addition to Uniswap v4. These are external smart contracts that developers can attach to pools to add custom functionality. The flexibility of hooks enables various features:

• Limit orders that execute automatically at specific prices
• Custom oracles for price data
• Dynamic fee structures that adjust based on market conditions
• Automated liquidity management
• Time-weighted average price orders (TWAP)

Hooks can run before or after key actions like swaps, adding liquidity, or pool creation. This gives developers unprecedented control over how pools function without needing to create entirely new protocols.

Flash Accounting: A Gas-Saving Innovation

Uniswap v4 introduces “flash accounting,” which tracks token balances internally during complex operations and only makes external transfers at the end. This system allows users to perform multiple actions (like swapping through several pools) without transferring tokens between each step.

Flash accounting takes advantage of the EIP-1153 Transient Storage feature to dramatically reduce gas costs. For example, in a multi-hop swap from ETH to USDC to DAI:

• In previous versions: Each hop required token transfers between pool contracts
• In v4: Only the final balance changes (paying ETH and receiving DAI) require actual token transfers

Native ETH Support Returns with Uniswap v4

Uniswap v4 brings back native ETH support, eliminating the need to wrap ETH (to WETH) before trading. This is a practical improvement since:

• Native ETH transfers cost about half as much gas as ERC-20 transfers
• Most users start or end their transactions in ETH anyway
• It removes unnecessary complexity from the user experience

Custom Accounting: Beyond Concentrated Liquidity

With custom accounting, hook developers can modify how pools handle tokens. They can:

• Add withdrawal fees on liquidity positions
• Create custom fee models
• Bypass the concentrated liquidity model completely to implement different curves, like the constant product formula used in Uniswap v2

This gives developers the freedom to experiment with new trading mechanisms while still benefiting from v4’s other improvements.

Technical Improvements Under the Hood

Several technical improvements make Uniswap v4 more efficient and user-friendly:

1. ERC-6909 Support: Users can keep tokens within the Uniswap contract as ERC-6909 tokens rather than repeatedly transferring ERC-20 tokens in and out. This significantly reduces gas costs for frequent traders.
2. Donate Function: Users can directly pay liquidity providers in either token, creating opportunities for new tipping or incentive systems.
3. Price Oracle Optional: Unlike v2 and v3, price oracles are no longer built into core pools but can be implemented through hooks. This saves about 15k gas on swaps when oracles aren’t needed.

What This Means for Users and Developers

For regular users, Uniswap v4 promises lower trading costs, especially for multi-hop swaps. Native ETH support will simplify the trading process and save on gas fees.

For developers, v4 opens up a vast playground for experimentation. The hook system allows for creating innovative trading mechanisms without building a complete protocol from scratch. This could lead to an explosion of customized pools tailored to specific trading needs.

Liquidity providers will benefit from more flexible fee structures and potentially new ways to optimize their returns through specialized hooks.

Looking Ahead

Uniswap v4 represents a major shift in how decentralized exchanges can function. Its modular approach through hooks encourages innovation while maintaining the security and efficiency of a battle-tested platform.

As developers begin exploring the possibilities of hooks and custom accounting, we’ll likely see new trading strategies and pool types emerge that weren’t possible before. Whether you’re a trader looking for cheaper swaps, a developer wanting to experiment with new market-making formulas, or a liquidity provider seeking better returns, Uniswap v4 has something exciting to offer.