Uniswap v4 is the next iteration of the Uniswap Protocol, the leading EVM-based Decentralized Exchange (DEX).
Next to serious gas savings, the main difference compared to previous versions is that v4 is a customizable platform. When dev teams want to iterate or modify the Uniswap protocol (which was done 100s of times for v2 and v3), they no longer need to fork and modify the Uniswap code base, coming with all its security risks. Instead they can add custom logic on top of v4, or even replace certain parts of the code base. They do this through modular plugins better know as “hooks”.
Hooks can be built for creating pools, swapping, adding liquidity and/or removing liquidity in any combination.
Some examples are: new order types for traders, dynamic fees that react on market conditions, new ways to incentivise liquidity, built-in oracles, different bonding curves, lifecycle management, built-in compliance… In short the possibilities are endless (yes also a whole new generation of scams and ponzis will pop-up, so be aware!).
But what does this mean for the users?
Focusing on the traders (swappers) first, v4 will result in overall better execution prices.
Different hooks will implement different fee and liquidity dynamics, or have custom bonding curves, optimised for certain token pairs and market conditions.
For each market condition and token pair, there will be a combination of optimal v4 pools to swap through.
This also means there will be an explosion in the number of pools for each token pair, possibly 100+ pools for the same pair on the same chain (for comparison, in Uniswap v2 there is just a single pool per token pair, or in Uniswap v3 there are only 1 to 3 pools per pair). The next question is how you as a swapper should know which pools to choose?
The beauty of the current state of DeFi is that you as a swapper shouldn’t know! Dex aggregators like 1inch, Odos, Paraswap… have made it their whole business model to optimize the routing of swaps as efficient as possible. The new v4 pools offer extra options, resulting in better prices.
For Liquidity Providers the story is similar, v4 will result in higher yields. Certain hooks will optimize to make providing liquidity in certain market conditions for certain token pairs as capital efficient as possible. Some might give LPs extra liquidity incentives, capture and distribute some MEV etc.
So again for each token pair in each market conditions there will be interesting high yield opportunities for Liquidity Providers. And likewise, even for the same token pairs there will be 100+ different pools.
Again the question arises, how should LPs know which pools to choose and how should they manage and move liquidity, given changing market conditions or changes in portfolio objectives?
This is where we believe Arcadia can play a crucial role, Arcadia is an intelligent Liquidity Management Layer for DEX ecosystems. Let’s explain what that means in more detail.
Arcadia can be thought of as an aggregator across DEXs for Liquidity Providers, just like Odos is an aggregator across DEXs for traders. There are some differences (swaps are atomic, providing liquidity not etc.), but the aggregator analogy is still a good mental model.
As abstraction layer above the DEXs, Arcadia helps Liquidity providers to: