The Uniswap Protocol is entering a new era with the introduction of hooks in v4, redefining the interaction between pools, swaps, fees, and LP positions. The introduction of hooks serves as a solution to a longstanding problem of protocol rigidity. Distinct from Uniswap v3's opinionated approach, Uniswap v4 introduces a model where custom logic can be integrated at pivotal junctures throughout a pool's lifecycle, making it inherently flexible.
Since Uniswap v4 was announced this Summer, the Uniswap Foundation has been focused on cultivating ecosystem growth and developing a robust capital allocation strategy to foster adoption of v4. On the community side, the Foundation has hosted spaces for devs, ran two hackathons (catch us in Istanbul for number three!), hosted an event with 20+ delegates to explore the potential of hooks, created and moderated a telegram group with 300+ active hook devs. Regarding grants, we announced a wave of v4 grants and awarded 7 grant recipients with $218,000 in funding just for v4 (announcement thread coming soon!). In terms of developer resources, we’ve released v4 documentation, launched a testnet, and are working with three developer ambassadors who have built amazing tools for the ecosystem. As you can tell, we’ve been busy! And this is just the beginning.
As stewards of the Uniswap ecosystem, the Foundation is here to empower developers and usher the community into a new chapter in the Uniswap tale. As such, our approach to promoting the hook ecosystem is methodical and phased.
Hooks are more than just a feature— they’re the heart of Uniswap’s next chapter. While the success of v4 hinges on various factors, the pivotal role of hooks cannot be understated. As we strive to cultivate v4 as a platform for liquidity innovation, the Foundation’s strategic focus around hooks aligns with our foundational growth aspirations:
Facilitate Seamless Migration of liquidity to v4: The Foundation will ensure a compelling array of pools and hooks in v4 after launch and in the months following to encourage a smooth migration of TVL from v3.
Catalyze Growth: We aim to drive Uniswap Protocol’s liquidity and swap volume by leveraging the potential of hooks. Our horizon is vast, whether enticing liquidity and swap volume from elsewhere in the DeFi landscape or unlocking net-new use cases that introduce fresh possibilities to AMMs.
Build a DeFi Innovation Hub: To make Uniswap v4 a universal liquidity protocol, we aim to harness and incorporate the most innovative hook practices emerging within the landscape into v4.
While each of these three goals stands distinct, they are inextricably linked. By boosting v4's appeal over v3 through innovative hooks, we amplify its intrinsic value and position it strongly against other AMMs. Every initiative the Foundation takes regarding hooks traces back to these foundational objectives. As our journey unfolds, we'll continuously adapt, ensuring our endeavors directly contribute to these milestones, refining our approach based on the outcomes achieved.
Hooks mark Uniswap v4’s departure from its predecessors and many existing DeFi protocols as it transforms from an application protocol to a true platform protocol. The Foundation will focus on nurturing the ecosystem that develops around the platform, providing grant funding to individuals and teams building infrastructure and applications.
Whereas developers building on top of Uniswap were mostly additive in the past, developers building on v4 will be multiplicative to its value. The breadth of use cases expressed via v4 hooks means that the Uniswap protocol advances in all directions in DeFi.
Building an ecosystem is like building a fire. Our grant initiatives concentrate on several pivotal strategic imperatives, which serve as the vital "kindling" for the hooks ecosystem:
Championing Hook Development: As we witness a surge in interest and hacking on hooks, our role is to bolster this emerging developer community, ensuring its progression from experimental endeavors to established best practices through robust documentation and developer events around the world (EthNYC, EthCC in Paris, and soon at DevConnect).
Optimizing LP Profitability: There are multiple potential ways that LP profitability can be increased. Hooks could redirect MEV to LPs and swappers; others can help mitigate it by constraining what is possible in the pool. Our strategy remains inclusive, embracing varied approaches to solving LP profitability. We’re facilitating research working groups and engaging in long-term partnerships with researchers exploring ways of mitigating, capturing, or redistributing LVR/MEV for both LPs and swappers with hooks. We’ve funded a grant creating Proof of Concept Hooks that can be repurposed by protocols that want to incorporate MEV capture into their workflow. Notably, one of the initial POCs we sponsor delves into dynamic fees, an aspect of the larger design spectrum aimed at alleviating or mitigating LVR/MEV issues. Our core objective here remains to foster developer education.
Accelerating the hook discovery and routing stack: The vastness of the hook landscape necessitates robust discovery and routing mechanisms. RFQ systems like Uniswap X and aggregators like 0x, 1inch, and Paraswap will likely play a major role. The Foundation recently selected three security firms to receive a “Bad Hooks Research” grant. In the coming months, we will provide grants for infrastructure and tools that enhance the efficiency, safety, and overall value of routing to DEX pools (especially v4 pools) for routers, aggregators, solvers, and all participants navigating Hookspace.
Fostering Protocols Built on Hooks: Our DevRel team is deeply engaged with the development community, collaborating with over 24 projects focused on what we term 'hook applications' or hApps. These groundbreaking projects span many functionalities, such as ALMs reconfiguring vault logic via hooks, virtual DEXs implementing specific hook functionalities, specialized lending protocols, custom oracles, and liquidity mining hooks. These represent the deepest opportunities for v4 to become a universal liquidity infrastructure across DeFi.
Facilitating Institutional Engagement: The adaptability offered by hooks holds the potential to revolutionize institutional participation in DeFi. By eliminating traditional hurdles, we envision a smoother onramp for institutions to develop and build in the space. Two grant recipients conducted research on barriers to institutional capital. This quarter, we are funding implementations of some of the solutions recommended in the first document as hooks. For instance, KYC hooks can streamline the verification process, ensuring compliance with regulatory standards while minimizing friction.
Here's a breakdown of our approach, tied to four key milestones.
Milestone 1, June-December: Open Source.
Milestone 2, January-February: Code Freeze, initiated after EIP1153 is incorporated when the code is audited.
Milestone 3, Q1 ‘24: V4 Deployed
Milestone 4, Q2 ‘24 and beyond: V4 Adoption
* timelines are estimates based on Dencun and Audit timelines
Milestone 1: Laying the Groundwork (Currently in Progress)
Grants: We are awarding several grants during this phase (the winners for our first set of RFPs, listed here, will be announced soon).
Some of these grants are allocated to teams working on proof-of-concept hooks and the associated educational documentation.
The rest are centered on research efforts, primarily delving into these hook’s security and risk dimensions.
Engaging the Developer Community: Our approach to building a strong community involves initiating online and offline hackathons targeted at POC hooks – you can see many of the hooks that have already been built due to our efforts here (this UniswapHooks site was built by a UF Developer Ambassador!). We also offer bounties to incentivize developers and align with our primary objectives.
Milestone 2+3: Paving the Way for v4 Launch
Outcome-Based Grants for Production Hooks: For detailed proposals geared toward hooks that will be important for the protocol to have at launch. These proposals should resonate with our overarching strategy and address areas that might otherwise lack funding from for-profit projects.
Potential Categories (under consideration):
LVR reduction, internalization, or redistribution
Boosting LP profits and overall yields
Innovating passive liquidity pool models
Establishing pools/swaps tailored for institutional requirements
Support Additional Infrastructure for Hooks Ecosystem (under consideration): We will continue to iterate on our documentation and tooling based on community feedback and invest in additional pieces of tooling and infrastructure for the v4 ecosystem:
Formulation of hook list standards
Development of explorers for hook lists and pools
Production-ready hook FOSS building block code library for simple use cases
Additional hook security research and tooling
Advanced POCs for more complex hooks
Milestone 4: Adapting Post v4 Launch
Our strategy becomes more dynamic as we transition into the post-launch phase of v4. The environment post-launch will dictate our approach, primarily based on user experience, liquidity dynamics, volume, and the evolving routing framework. We plan to be adaptive and adjust our strategy as needed.
Hook Security & Development: There are multiple avenues hooks could take:
LPs might be able to produce hooks using a mixture of previously audited hook logic. Security implications of this approach remain undetermined. Alternatively, hooks could be more tailored and purpose-built by specialized teams, presented to the market as full-fledged hook contracts.
Investigating grants and studies for advanced hook development, including creating pre-built libraries filled with audited hook code.
Using coprocessor architectures, advancing automated integrations of verified safe hooks, and enhancing gas efficiency.
For 2024, Uniswap Foundation has earmarked up to $9M in funding for incentives programs. This capital might be best used to support a migration from V3 to V4.
As we observe the evolution of the hook ecosystem, we could fund larger, more intricate protocols and hook applications in line with v4 requirements.
Our approach to crafting the roadmap for hooks sees them not just as a feature to v4, but as a catalyst for liquidity innovation. As the v4 narrative unfolds, each effort, whether boosting hook development, improving LP profitability, or easing institutional engagement, is driven by a singular goal – empowerment of the developer community.
By dismantling the barriers of protocol rigidity and fostering a realm of tailored logic within pools, Uniswap v4 is poised to let the developer ecosystem push the boundaries of onchain liquidity. As stewards of this vibrant ecosystem, we are not just navigating unchartered waters but actively shaping the currents and tides that will drive the community towards a horizon brimming with possibilities.
Get started with our alpha v4 docs and create the unprecedented.