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Uniswap V4: Framework-based innovation leads the way in DeFi.

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Using the new features introduced in Uniswap V4 as an example, let's take a look back at the innovative forces that truly exist in the DeFi world.

Original author: Haotian (Twitter: @tmel0211), blockchain security practitioner

Uniswap V4 has injected a catalyst into the cold and quiet crypto industry during the bear market. People can't help but marvel at the paradigmatic power of Uniswap's framework innovation, and have confidence in the future of DEX snatching liquidity from CEX. However, no matter how awesome Uniswap is, it is only the culmination of innovation in the DeFi industry over the past 5 years. The innovative moments on many DeFi protocols in the past are also worth sharing and praising.

It all started with those 500 lines of code, as the genes and origins of DeFi, the AMM algorithm of X*Y=K opened the "Cambrian moment" of the DeFi industry.

This algorithm automated asset pricing and exchange, realized risk hedging and arbitrage mechanisms, realized open and anti-censorship finance, and most importantly, realized modular reorganization of financial business, allowing finance to be combined and reconstructed like building blocks, laying the seeds for various future gameplay.

Uniswap V4's Hooks allow for the addition of new features and capabilities to AMM pools, while Singleton contracts change the account framework and transaction logic, representing a framework-style innovation that opens up countless possibilities. Taking the new features introduced in Uniswap V4 as an example, let's review the innovative forces that exist in the DeFi world, which began with Uniswap but extend far beyond it:

1) "Limit Order": By the end of 2020, dYdX implemented the "Limit Order" feature based on its underlying StarkEx L2 extension protocol "Private Order Book" (matching transactions in L2 hidden state and presenting the results on-chain). This is very different from implementing limit logic under the V3 Concentrated Liquidity model, but the idea of limit orders can reduce AMM trading risks and improve efficiency, which is particularly important for innovation in the development of DeFi.

2) "TWAMM": In July 2021, Perpetual Protocol launched a Time-Weighted AMM model, which adjusts the token ratio and price in the asset pool based on recent trading records. This allows AMMs to quickly and accurately respond to market price changes. Overall, the introduction of time-weighting not only improves price discovery efficiency, but also enhances resistance to manipulation, making it difficult to manipulate AMM pricing with large orders. This is of great significance for the evolution of DeFi mechanisms.

3) "Dynamic Fee Rates": In May 2021, GMX implemented a mechanism for dynamically adjusting transaction fees based on market conditions, greatly improving the competitiveness and pricing efficiency of AMM products. GMX is able to achieve dynamic adjustment of transaction fees driven by algorithms, which is more sensitive and stable compared to Curve's user-selected dynamic fee rates. With the effective combination of algorithm-driven and manual selection, Uniswap v4 further improves liquidity utilization efficiency.

4) "NFT Injected into AMM": In December 2020, NFTX achieved a deep integration of NFT and AMM, allowing NFTs to be traded and priced with high liquidity in AMM pools like ERC20 tokens, thereby solving the low liquidity problem of NFTs. However, NFTX actually converts NFTs into ERC20 tokens and collateralizes them to achieve liquidity, while Uniswap V4 directly allows NFTs to participate in liquidity.

5) "Interest-bearing borrowing and lending of funds beyond liquidity range": In March 2021, Aave V2 enabled the borrowing and lending of AMM liquidity assets in the Aave lending pool to earn additional interest income, undoubtedly improving the efficiency of fund utilization. The key is that it realizes the combined application of DeFi across protocols and mechanisms, opening up ideas for deep collaboration between DeFi protocols in the future.

6) "LP Fee Auto-Compounding": In October 2020, Curve Finance added an auto-compounding mechanism in version 2, which allows for the automatic conversion of LP transaction fees into LP tokens and adding them to the LP position. However, this mechanism can lead to a decrease in the amount of LP tokens received when facing price fluctuations, which is a challenge even for Uniswap V4.

7) "Macro contract management segmented liquidity pool": In 2020, Balancer implemented the function of managing segmented liquidity pools through the Vault contract. This reduces the high cost of deploying a large number of single-token pools, and the Vault contract can avoid gas fees generated by repeated reading and transfer. Uniswap V4's Singleton is based on the concept of Vault, but does not require pre-definition of all combinations, making it more flexible.

8) "Introduction of Donate Function": In September 2020, Sushiswap introduced the donate function in its V2 version, allowing users to donate tokens to specific liquidity providers as an incentive. This is beneficial for attracting and retaining more liquidity providers. Although this mechanism carries certain commercial manipulation risks, it will be a new paradigm for DeFi community construction driven by the community.

Additionally, Perpetual Protocol can provide a fully lossless trading mechanism, reducing liquidity loss through algorithms and comprehensive pricing; mStable offers a mechanism for merging cross-chain assets into liquidity, allowing users to merge assets on different chains into one liquidity pool; Maverick Protocol can define annualized yield based on the user's locked token period;

There are many similar innovations happening quietly, which may also be adopted by Uniswap in the future.

Uniswap has achieved the prosperity of DeFi, but in fact, the combinational innovation of DeFi is also gradually achieving Uniswap. It is because of these mechanisms or concepts that have been explored successfully or unsuccessfully that the V4 era of Uniswap shines so brightly.

These days, while traveling in Hong Kong, I see international people hurrying on the complex and intricate roads. I wonder what Hong Kong's significance to web3 will be, hoping it will be just like Uniswap to DeFi.