Uniswap V4 is still in the making, but its capabilities are already known. The new features, allowing developers to adjust the liquidity curve, may lead to new types of scams.
Uniswap V4 may arrive in the fall, opening up new tools to adjust liquidity pairs. There are worries that the technology to adjust liquidity may lead to a new type of exploit.
The new version will allow teams to adjust liquidity and trading rules during different times in a token’s life cycle. The initial idea for the hooks technology was to build a smoother trading arc for new tokens, leading them to a more mature market.
The ability to adjust liquidity, however, may lead to new types of exploits that would affect retail traders. Hooks offer solutions that could simulate centralized exchanges, but also turn Uniswap into a version of Pump.fun. Hooks may first appear on testnets, as they are essentially smart contracts. Testing and audits are still key to ensuring the new technology will be safe from exploits. The documents on hooks are already available to developers, though Uniswap warned they may be subject to change.
Uniswap has not finalized all of its documents, and the final application of hooks will depend on the available tools. So far, communities have suggested features such as automated buybacks, where a project mops up tokens during volatile price action.
Otherwise, hooks can create specific market conditions, such as mimicking New York trading hours for some assets. Hooks proposed by the community also include KYC features, as well as anti-KYC, where certain tokens and holders can be banned from pools.
The current hook technology proposals arrived after Uniswap presented some of its code for review at the start of 2024. Features like donation functions are seen as doors for scams, which can distribute some of the funds in the pool, similar to a rug pull.
The fears for the new technology is that either Uniswap can evolve to rival multiple types of markets, or work to create multiple scam pools and fragment liquidity with too many types of markets. Currently, Uniswap V3 pairs have practically the same trading rules, with no attempts to introduce profit-taking automation, stop loss or a simulation of order books.
Some of the hook proposals also suggest the creation of privacy pools, which may facilitate scams similar to Tornado Cash. Other pools can be created to serve only the owners of a specific NFT.
Even the mention of Uniswap V4 has sparked scams in the past, with a fake airdrop targeting personalized wallets. Uniswap V4 has no fixed date to launch, but there are expectations for opening the new features in Q4.
On the positive side, some community-created hooks may solve the problem of MEV bots and sandwich attacks, by assuring a new way of handling orders. However, pools may become more complex and require additional research before joining. Some of the complex hooks may not see much liquidity or user interest, and projects may have to market their pools before gaining trading volumes.
While many have a high-level idea of what @Uniswap v4 entails, I do think it's still a slightly underlooked/appreciated upgrade. I believe uni v4 could potentially bring about a wave of experiments/ponzis to ETH/EVM chains and create its own "pump dot fun" moment. Explainer and… pic.twitter.com/q12v3JVBdG
— ML (@c0xswain) August 6, 2024
Uniswap joins the cross-chain trend
Uniswap has often expressed intentions to offer cross-chain trading. The exchange itself spread to 12 Layer-1 and Layer-2 chains in total, with the most notable growth on Base.
To that end, Uniswap and Across have proposed a change to the Ethereum code, allowing for cross-chain swaps. The proposed technology aims to remove the need for bridges and wrapping assets in trading.
Uniswap also aims to resolve the disparity of V2 and V3. Uniswap V2 still carries $1.79B in liquidity, though with low trading volumes under $200M per day. However, the version still carries both old and new pools, mostly due to its liquidity rewards. Version 2 increased its liquidity rewards from August 1. Uniswap V3 is more active, with $2.62B in liquidity and close to $1B in trading volumes.
Trading on Uniswap drew in more than 10M users in July, and swaps have been constantly expanding on the exchange. Despite this, the UNI token traded under $6 after the recent market correction. The total value locked in all Uniswap pools exceeded $5.2B after the market crash, and some pools are used to hold the idle liquidity for multiple meme tokens.
Cryptopolitan reporting by Hristina Vasileva
