The Innovation Engine in the DeFi Space: Analysis of the Four Mechanisms of Uniswap V4

Uniswap released the draft code for version 4 on June 13, causing a strong reaction in the industry. As the largest decentralized trading platform currently, Uniswap has long held over 50% of the on-chain trading share, with its trading volume being more than three times that of its second-largest competitor. The launch of version 4 will further consolidate its leading position in the Decentralized Finance field.

Uniswap Labs detailed the four major innovative mechanisms of V4 in the released documentation: Hooks that enable customizable AMM, Singleton that changes account frameworks and order logic, Flash accounting that can significantly reduce Gas fees, and Native ETH. These features will bring greater flexibility, higher quality liquidity, lower fees, and more options for DEX. At the same time, these innovations also inject new momentum for DEX to catch up with CEX, which will have a profound impact on the future development of Decentralized Finance.

Uniswap Leads Innovation in the Decentralized Finance Industry

Each version of Uniswap has led the development direction of DEX and promoted the prosperity of the entire Decentralized Finance ecosystem. Let us take a look back at the historical versions of Uniswap:

V1(2018-11-): First introduced an automated market maker model to provide trading for ERC-20 tokens and ETH.

V2(2020 May 2020: Supports direct trading between ERC-20 tokens and introduces a liquidity mining mechanism.

V3)2021 May (: Introduction of centralized liquidity and price limit order functions.

The upcoming V4 version will undergo comprehensive innovation at the DeFi infrastructure level, including the self-creation of token pools, the addition of new features to the AMM through "peg", and the adoption of a large contract framework. These innovations will bring new changes and opportunities to the entire DeFi ecosystem.

![The growth flywheel in the DeFi sector, detailed explanation of the four major innovative mechanisms of Uniswap V4])https://img-cdn.gateio.im/webp-social/moments-9cc1411cb7a65d738f3bd289fa1d1364.webp(

Uniswap V4: Four Major Innovative Mechanisms

) Hooks

Hooks are one of the key innovations of V4, essentially external contracts created and defined by developers to implement trading logic. Developers can invoke external contracts at specific points in the lifecycle of the liquidity pool to perform designated operations. This customizability transforms Uniswap V4 into a flexible liquidity pool platform, inspiring the creativity of developers and the community.

The currently displayed Hooks samples include:

• Time-Weighted Average Market Maker ### TWAMM (
• Dynamic Fees
• On-chain Limit Order
• Lending of idle liquidity
• Customized on-chain oracle
• Internalized MEV profit distribution

) Singleton

Singleton is a new contract architecture where all liquidity pools are stored in a single contract. This design significantly reduces the cost and Gas fees of creating liquidity pools and improves trading efficiency.

Advantages of Singleton Architecture:

• Reduce development and maintenance costs
• Improve trading efficiency and reduce Gas fees
• Enhance scalability
• Simplified liquidity position management

Flash Accounting

Flash Accounting is a new accounting method that calculates transaction fees based solely on the net balance, thereby reducing Gas consumption. This method not only lowers transaction costs but also improves cross-pool routing efficiency, making it possible for more complex integrations and innovations.

Native ETH

Native ETH supports direct trading between ETH and other tokens without the need to convert to WETH first. This greatly reduces transaction costs and time while improving liquidity. Uniswap V4 has added an ETH pool in the core contract specifically for direct trading between ETH and other tokens, providing users with a more convenient and efficient trading experience.

![The growth flywheel in the field of Decentralized Finance, a detailed explanation of the four major innovative mechanisms of Uniswap V4]###https://img-cdn.gateio.im/webp-social/moments-833de3d656b2e16d59bfd8789c30412d.webp(

Uniswap V4 is expected to solve the DEX dilemma

For a long time, DEX has been plagued by issues such as insufficient liquidity, poor user experience, and high transaction fees. Uniswap V4 improves the DEX situation through innovative solutions in four aspects:

1. Improve liquidity: Enhance liquidity through mechanisms such as the Hook function and MEV profit distribution.

2. Optimize user experience: Introduce the TWAMM algorithm and limit order trading functionality to improve price discovery efficiency and trading experience.

3. Reduce transaction fees: Lower fees through mechanisms such as MEV profit distribution and flash accounting.

4. Improve cost efficiency: Singleton architecture and lightning accounting help users minimize costs and maximize benefits.

The innovations of Uniswap V4 will bring users greater freedom, higher liquidity, lower fees, and more comprehensive and convenient services. Although there are still gaps between DEX and CEX in certain aspects, this gap is gradually narrowing. It is believed that in the near future, Uniswap V4 will play a more important role in the competition between DEX and CEX, becoming an important engine driving the development of the Decentralized Finance industry.

![The growth flywheel in the DeFi sector, detailing the four major innovative mechanisms of Uniswap V4])https://img-cdn.gateio.im/webp-social/moments-faa16c211aee77ca6319fc828b708d06.webp(