We are pleased to unveil a new initiative under our evolved grants program: we’ve provided funding to Gauntlet for Routing Algorithm Optimization. This blog post discusses the importance of this research for Uniswap v4.
Routing Efficiency for Hooks
Uniswap v4, the upcoming iteration of the Uniswap Protocol, introduces a plethora of new features such as native ETH support, unlimited fee tiers, flash accounting, and ‘hooks’— smart contracts attachable to liquidity pools. Hooks are revolutionizing the way pools can be customized, enabling functionalities such as dynamic fees, on-chain limit orders, TWAMM, and more. Although hooks bring unprecedented innovation and flexibility, the number and kind of hooks which will be available may complicate routing. In order for swappers to continue to receive the best value, and for hook developers to know that competitive hooks will be routed to, research into how to effectively route in this new environment is required. Acknowledging the importance of efficient routing with the added intricacies of v4 hooks, Uniswap Foundation has provided Gauntlet a grant of $250,000 for routing algorithm research to allow stakeholders to optimize routing across Uniswap v4 hooks.
About Gauntlet’s Routing Algorithm Research
This research initiative is designed to ensure that developers' v4 hooks, which offer customizable features with significant potential impacts on liquidity and trading volume, can be effectively integrated into the routing strategies used by frontends, aggregators, and Order Flow Aggregators (OFAs). Gauntlet's research will develop a comparison framework that enables routers to assess the operational and risk implications of various hooks on their routing algorithms. This will be especially crucial for those developing 'headless' hooks, which depend on external routing to be effective. Additionally, the initiative aims to reduce entry barriers for new routers and address the 'chicken-and-egg' dilemma related to liquidity and volume, making it a vital resource for developers navigating the complexities of Uniswap v4, starting on launch day.
Gauntlet’s deliverables include a research paper and a mathematical theorem for measuring hook quality, outputs of numerical tests, a hook optimizing routing algorithm, and an approximation algorithm that covers a diverse range of routers. Grant money will be distributed in two parts– on the start date and end date– in accordance with the achievement of these deliverables. For more details on the timing, pricing and terms, read the full proposal. If Gauntlet's routing algorithm optimization research is successful:
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Developers will be empowered with a cost framework to improve routing quality, and
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Aggregators will be able to use the algorithm to ensure that user experience is consistent for swappers.
In addition to the production of the research, Gauntlet’s success will be measured upon how many hook developers incorporate this research into their development processes, as well as the number of implementations of the research by routers.
Meet the Grantees
Gauntlet is a DeFi-native quantitative research firm specializing in risk management, incentive optimization, and mechanism design. Since 2019, the Gauntlet team has been at the forefront of new research in DeFi, with a proven track record of delivering research on ALMs, protocol fees, and more pivotal research relevant to the Uniswap Protocol.
Leading the routing algorithm optimization research is Gauntlet’s CEO, Tarun Chitra, who has authored more than 30 research papers, including ‘An analysis of Uniswap markets’ which has been cited 193 times. This upcoming project on routing algorithm research acts as a sequel to his co-authored work, “An Efficient Algorithm for Optimal Routing Through Constant Function Market Makers.” Tarun notes, “We aim to update this work to Uniswap v4 and provide wallets, routers, and other end-user facing products with the tools to make trading smoother and more efficient than before.”Working on this research alongside Tarun include Gabe Pohl-Zaretsky, Head of Applied Research; Kshtij Kulkarni, Researcher; and Jake Horowitz, Senior Protocol Program Manager. This collective has a history of success in working with the Uniswap Foundation in the past 1.5 years, receiving grants to produce invaluable analyses on Incentive Design, Liquidity Mining, Price Execution, and more, positioning them as the ideal team to tackle v4’s routing algorithm challenges.
Jake reflects on the importance of this initiative: “Gauntlet's comprehensive research and analysis will meticulously evaluate the impact and cost of hooks on routing algorithms, fortifying the Protocol's infrastructure, fostering resilience and efficiency in DeFi's dynamic markets.”
Laying the Groundwork
As Uniswap v4 charts new territory with hooks, Gauntlet’s research on routing algorithms and hooks will be a foundational resource for developers, aggregators, solvers and fillers to efficiently leverage the power of v4. By funding this initiative, Uniswap Foundation is laying the groundwork for the arrival of Uniswap v4 and future iterations of the Protocol, ensuring its resilience and efficiency as exciting new features are introduced.
As part of the Uniswap Foundation's evolved strategy, which emphasizes metrics-driven grant funding and transparency, updates on Gauntlet’s Routing Algorithm Research will be posted to Uniswap Protocol Governance in upcoming quarters.