Uniswap V4: One DEX for everyone?

The battle for second place in the race for DEX trading volume is a close one, but the top-ranked Uniswap is far ahead of its competitors.

The most successful decentralized trading platform serves approximately half the DEX market on any given day. So, any change to its service is bound to have a major impact on the DeFi community as a whole.

Speaking to Blockworks on the Bell Curve podcast (Spotify / Apple), Myles O’Neil says the upcoming improvements in Uniswap’s V4 upgrade could widen the gap between itself and other DEXs. 

Building in public

The associate at Reverie, an advisory and investment firm, observes that the Uniswap team is shifting to a social consensus approach, improving the protocol by “building in public.”

The team appears to be “aligning its brand with that of Ethereum,” according to him, “so when people think of Ethereum, they also think of Uniswap.”

One key improvement included in V4 is the introduction of “hooks,” O’Neil says, which are smart contract mechanisms that expand customizability for developers. Hooks enable developers to “add logic” after swaps or between blocks, he explains.

The improvements will broaden Uniswap’s versatility, O’Neil says, as “a platform for other apps to build upon” in a network of “independent dependents.” 

With the proposed upgrades, O’Neil believes future developers will forgo “starting from scratch,” instead utilizing tools provided by Uniswap to “tap into the liquidity and tap into the existing brand and user base.”

If Uniswap is successful, O’Neil says, “they’ll have all these would-be competitors now building on top of the Uniswap protocol.”

“It’s a really strong strategy.”

Outsource development to the market

“They can retain flexibility to build user-facing tools with the wallet and the mobile app and let the protocol be a little bit more unbiased and open,” O’Neil says.

The customizability provided with hooks will accelerate development, according to O’Neil. Uniswap can “outsource” innovation to the market, where developers can “really experiment,” he says.

Framework Ventures co-founder Michael Anderson gives one example of how hooks could be utilized with limit orders. “Some price on some AMM (automated market maker) gets below some threshold or above some threshold, and there’s some trigger with a hook that says, okay, sell or buy that asset, or swap that asset.”

Anderson agrees that the V4 development process indicates a move toward a more “open-source” approach by the Uniswap team, which he says is a “really positive development for a protocol.”

With all the possibilities that become available through hooks, Anderson says Uniswap’s functionality will look quite different from the way it is today. 

“Historically, what we’ve seen with Uniswap is that it’s really simple to use,” he says. V3 added considerable complexity, Anderson says, along with benefits to users. With hook customization, the possibilities for applications broaden considerably.

“It’s going to be interesting to see what the user experience looks like,” he says. “That’s going to be a pretty huge divergence from what most people think of Uniswap today.”

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