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According to a June 13 blog post by Uniswap founder Hayden Adams, Uniswap Labs has released the code draft for Uniswap V4. The new code has “hooks” or plugins that allow developers to create their own liquidity pools.
Uniswap is the largest decentralized cryptocurrency exchange in the world by volume. Its latest version V3 was deployed on May 4, 2021.
According to the announcement, the V4 “hooks” feature will allow future developers to create on-chain limit orders, automatic deposits for lending protocols, liquidity provider (LP) fees, and many other innovations for the exchange once implemented.
Releasing the source code is the first step towards launching a new version of Uniswap. The team now plans to talk to members of the Uniswap community and refine this base code over time. Once there is sufficient consensus around the final version, V4 will make a formal proposal and be presented to Uniswap’s governing body, UniswapDAO.
According to Adams’ post, the goal of Uniswap V4 is “to provide a way for pool deployers to inject code that performs a designated action at key points throughout the pool’s lifecycle—for example, before or after a swap, or before or after an LP position change. “.
For example, developers will be able to create time-weighted average market makers (TWAMMs), which will allow users to sell large amounts of cryptocurrencies in small batches over time. This can help traders avoid getting ahead of EVM bots or adverse price fluctuations. On-chain limit orders will also be possible, as pools will be able to include logic that allows them to execute an order only when the token reaches a certain price.
Some other examples of “hooks” include code that can re-pay fees back to an LP pool or rent out inventory when a particular pool is not in use.
Speaking to Cointelegraph, Uniswap Labs engineer Sarah Reynolds said the new version will enable automated market maker (AMM) exchanges like Uniswap to evolve faster than ever before thanks to its inherent customization:
“In V4 we’re really starting to see a kind of ‘primitive’ for custom logic.[…]and that’s really exciting because I think he’s really going to start building AMM innovation pretty quickly.”
Bridget Frey, Head of Communications at Uniswap Labs, echoed this sentiment, stating, “Right now, other people have to create new AMMs to do most of this work. Now you can build your Hook Contract project on top of the security and liquidity of Uniswap in a way that hopefully makes innovation faster and easier for all kinds of projects.”
Decentralized exchanges have recently seen an influx of new users. Trading volume on the top three DEXs increased by 444% after the US Securities and Exchange Administration sued its centralized competitors, Binance and Coinbase, for allegedly violating securities regulations. This surge came despite the SEC also trying to change the definition of “exchange” to include decentralized ones. Cryptocurrency venture capital firm Paradigm claims that decentralized exchanges do not meet the definition of an “exchange” found in securities laws.