Uniswap v3 to v4: The Evolution of DEX or the Foundation for Future DeFi?

Uniswap v4 is the latest iteration of the protocol, designed to enhance asset exchange efficiency and improve scalability.

While it remains a decentralized exchange (DEX), many consider it a next-generation DEX—evolutionary, revolutionary, and more! 😅

Uniswap v4 addresses two critical shortcomings of its predecessor:

High fees for multi-pool asset swaps. Swaps requiring multiple pools (more than two) are energy-intensive, especially on Ethereum.
Limited liquidity utility outside the protocol. A single codebase for all pools restricted external applications and required full forks for logic changes.

Key Innovations

Hooks

Purpose: Enhance scalability and enable flexible liquidity use outside the protocol.

Hooks allow developers to inject custom logic into pool operations, executed before/after:

Pool creation
Liquidity addition/removal
Swaps

How Hooks Work:

A hook is a function in an external smart contract triggered during pool operations.
Logic executes pre-/post-operation (e.g., beforeSwap or afterSwap).
Undefined hooks are ignored.

Hook Types:

Pool Initialization: beforeInitialize / afterInitialize
Liquidity Management: beforeAddLiquidity / afterRemoveLiquidity
Swaps: beforeSwap / afterSwap
Donations: beforeDonate / afterDonate (direct tips to liquidity providers)

Notable Features:

Dynamic fee adjustments via hooks (e.g., StableSwap-like curves).
One-time initialization hooks vs. reusable swap/donation hooks.

Singleton Design

Purpose: Reduce gas costs and simplify complex swaps.

All pools reside on a single contract (PoolManager.sol).
Eliminates inter-contract asset transfers for multi-pool swaps.
Retains separation between core (pools) and periphery (routing) contracts.

👉 Explore how Singleton Design cuts gas fees

Flash Accounting

Purpose: Optimize gas usage with transient storage.

Uses EIP-1153 for interim storage (100 gas vs. 20,000 gas for sstore).
Finalizes state changes only after all operations complete.

Native ETH Support

Direct ETH transactions without WETH wrapping (unlike v3).
Enabled by Singleton and Flash Accounting.

| Version | ETH Handling |
|---------|-------------|
| v2 | Auto-converts to WETH |
| v3 | WETH required |
| v4 | Native ETH supported |

Dynamic Fees

Removes fixed fees (0.05%, 0.30%, 1.00%)—customizable per pool.
Adjustable via hooks (e.g., volatility-based fees).

Subscribers

Purpose: Improve liquidity provider (LP) tools.

Smart contracts can subscribe to LP position changes (e.g., deposits/withdrawals).
Notifications via PositionManager.sol.

ERC-6909 Tokens

Minimalist alternative to ERC-1155 for tracking in-protocol assets.
Reduces gas costs for frequent traders/LPs.

Routing Challenges in Uniswap v4

Hooks add unpredictability—execution logic isn’t verifiable without runtime checks.
Tools like HookRank aim to audit hook safety.

Conclusion

Uniswap v4 isn’t a "next-gen DEX" in swap mechanics but a liquidity platform for:

Dynamic fees to mitigate impermanent loss.
MEV resistance.
Customizable pools via hooks.

👉 Discover how Uniswap v4 powers DeFi innovation

FAQ

Q: Does v4 improve swap efficiency?
A: Yes, via Singleton and Flash Accounting—fewer contracts = lower gas.

Q: Are hooks risky?
A: Untrusted hooks may introduce vulnerabilities; audit tools are emerging.

Q: Can I still use v3 pools?
A: Yes, v4 supports migration but operates alongside v3.