On June 13, Uniswap, the largest decentralized exchange (DEX) by global trade volume, published a summary of its upcoming Version 4 (V4) along with an early implementation of the code. The team stated that V4 offers a variety of new features, most notably a method to customize liquidity pools using a functionality called “hooks”.
Customization Takes Center Stage with Uniswap V4
Uniswap's blog post described their vision: “We see Uniswap as core financial infrastructure [and] think it should be built in public with space for community feedback and contribution.” While V4 brings several changes, the most prominent feature is customizable liquidity through hooks. “Enter hooks, which are plugins to customize how pools, swaps, fees, and LP positions interact,” the post details. “Developers can innovate on top of the Uniswap Protocol’s liquidity and security to create customized AMM pools through hooks that integrate with v4’s smart contracts.”
Example adjustments mentioned include a time-weighted average market maker (TWAMM), dynamic fees based on volatility, on-chain limit orders, out-of-range liquidity depositing to lenders, and custom on-chain oracles. Other potential features could involve auto-compounded LP fees back into LP positions and internalized MEV profits with the ability to distribute them back to LPs. Uniswap believes these ideas merely scratch the surface: “Really, the sky’s the limit. Because each pool is now defined by more than just the tokens and fee tier, we’ll see pools of all colors, shapes, and sizes.”
Licensing and Governance
Uniswap V4’s core logic, like V3, is non-upgradeable. While each pool can use its own hook smart contract, hooks can be limited to only specific permissions determined at pool creation. The code release is governed by a Business Source License 1.1, imposing restrictions on commercial or production use for a maximum of four years. After this period, the license will transition to a GPL license, remaining in effect indefinitely. Uniswap Governance and Uniswap Labs retain the authority to grant exemptions to this license.
The announcement marks a significant step for DeFi, unlocking new customization possibilities for liquidity providers and developers. The community has begun discussing the potential applications and risks of the hooks system, which could reshape the landscape of automated market making.