Uniswap v4: The Game-Changing DEX Upgrade

Uniswap v4 marks the most significant evolution of decentralized exchanges (DEXs) to date. This upgrade aims to reduce transaction fees, streamline liquidity management, and equip developers with advanced tools for building custom DeFi apps.

Each previous version of Uniswap introduced key improvements to the protocol:

• V1 introduced automated market makers (AMMs).
• V2 allowed direct token swaps.
• V3 introduced concentrated liquidity but significantly increased gas fees due to its complex contract structure.

Despite these advancements, Uniswap remained imperfect—each version addressed certain issues while creating new ones. For instance, V1 required ETH as an intermediary, complicating trades, whereas V2 suffered from inefficient liquidity allocation. Meanwhile, V3 gave liquidity providers more control but consequently increased gas fees. 

With Uniswap V4, the community finally has a chance to experience a DEX without critical limitations.

Uniswap: The Evolution of the Decentralized Exchange from V1 to V4

Uniswap launched in 2018, back when DEXs were still a niche experiment. At the time, few could have predicted that this protocol would go on to set the standard for the entire industry. Since then, Uniswap has undergone four major upgrades, each making DEX trading more accessible, cost-efficient, and effective.

The latest upgrade, Uniswap v4, released in 2025, is the most significant yet. 

However, to understand the present, we must first look at the past. To truly assess how Uniswap v4 improves upon previous versions, it’s essential to recognize the challenges they faced, including the requirement to use ETH as an intermediary asset in v1 and the high gas fees in v3.

Uniswap V1 (2018): The Dawn of Decentralized Trading

In November 2018, Uniswap launched the first version of its automated market maker (AMM), built on the x * y = k formula. This equation dictates how an asset’s price fluctuates based on its supply within the liquidity pool.

This simple yet revolutionary innovation allowed users to trade without intermediaries or centralized exchanges.

However, the protocol only supported swaps through ETH. For example, to exchange USDC for DAI, users first had to swap USDC for ETH and then ETH for DAI. As a result, transactions became more complex and fees increased.

Additionally, there was a 0.30% fixed fee, which was fully distributed to liquidity providers (LPs) with each trade, while the protocol itself generated no revenue. Uniswap v1 demonstrated that a DEX could operate without centralized order books, but its functionality remained limited.

Uniswap V2 (2020): Direct Swaps and Expanded Functionality

In May 2020, Uniswap launched v2, addressing the biggest drawback of v1—the requirement to use ETH as an intermediary asset. With this new version, users could swap tokens directly, eliminating unnecessary steps and reducing fees.

Key improvements in Uniswap v2:

1. Direct ERC-20 ↔ ERC-20 waps

Uniswap v2 removed the need for ETH as a bridge currency. As a result, users could swap USDC for DAI directly, streamlining transactions and lowering costs.

2. Flash Swaps

Uniswap v2 introduced flash swaps, allowing users to borrow any asset without collateral, provided the debt was settled by the end of the transaction.

3. Improved Price Oracles

Uniswap v2 integrated built-in oracles to prevent price manipulation. Unlike v1, this version provided reliable time-weighted average price (TWAP) data.

Consequently, Uniswap v2 became more user-friendly, efficient, and secure. Direct swaps reduced transaction fees, flash swaps unlocked new trading strategies, and enhanced oracles improved security. 

However, a key inefficiency remained: liquidity pools spread funds evenly across the entire price range, resulting in poor capital efficiency.

This challenge was finally addressed in Uniswap v3.

Uniswap V3 (2021): More Efficient Liquidity, but Higher Fees

In May 2021, Uniswap introduced v3, its most ambitious upgrade to date. This version revolutionized liquidity management, making it more flexible and capital-efficient.

The key innovation was concentrated liquidity. 

In previous versions of Uniswap, liquidity providers (LPs) had to distribute their funds evenly across the entire price range. As a result, most of the capital in the pool remained unused.

Now, LPs could allocate their liquidity to a specific price range. If the asset’s price moved outside this range, their liquidity would temporarily become inactive.

This upgrade introduced two key benefits:

1. Higher returns for LPs: Capital was used more efficiently, which meant fees were shared among fewer participants.
2. Deeper liquidity at key price points: Pairs like USDC/DAI could maintain minimal spreads, as LPs concentrated liquidity within a narrow range of around $1.

However, there was a downside: if the price moved outside the selected range, LPs' assets would be fully concentrated in a single token, meaning they would no longer earn trading fees. To stay profitable, LPs had to adjust their positions, which required additional transactions.

Additionally, Uniswap v3 introduced three fee tiers:

1. 0.05% – For stablecoin pairs (low fees, minimal risk).
2. 0.3% – The standard rate for most trading pairs.
3. 1% – For highly volatile and less liquid assets.

Now, liquidity providers (LPs) could tailor their approach—either focusing on stablecoin pools with lower fees and minimal risk or opting for higher-yield pools with greater volatility.

Moreover, each liquidity pool in v3 became an independent smart contract. While this increased flexibility, it also led to significantly higher gas fees.

As a result, creating a new pool or adjusting liquidity ranges became more expensive than in v2. These high gas fees became one of v3’s biggest drawbacks, especially for users trading with smaller amounts.

Related: Liquidity Pools — The Engine Driving DeFi

What Is Uniswap V4? Key Changes Explained

Uniswap v4 was announced in June 2023 and officially launched in February 2025. However, it was more than just an upgrade. For the DeFi community, it represented an opportunity to redefine the logic of decentralized exchanges and on-chain trading.

Every previous Uniswap upgrade introduced new features, but each also came with new limitations. V4 is the first version to provide a holistic solution, offering lower fees, customizable liquidity pools, and more efficient liquidity management.

Let’s explore the key innovations in Uniswap v4 that make it the most powerful DeFi upgrade yet.

Hooks: Greater Flexibility for Developers and LPs

Hooks are the most transformative feature of Uniswap v4. Essentially, they enable customizable liquidity pool logic, allowing for personalized trading rules, fee structures, and automated strategies. Instead of following rigid parameters, pools can now be tailored to specific needs.

In previous versions, Uniswap had fixed rules and conditions. Now, developers have much more flexibility. It’s as if Uniswap v3 had built-in automated orders, dynamic fees, or external service integrations, but without requiring a separate smart contract.

Hooks are external smart contracts that can be linked to a liquidity pool at various stages of its lifecycle—before or after pool creation, liquidity provision, swaps, or liquidity withdrawals.

This system introduces a range of new features:

• Automated Limit Orders: Users can set a target price at which a swap will execute automatically.
• Dynamic Fee Adjustments: Pools can adjust fees based on market conditions, increasing them during high volatility to compensate LPs and lowering them in stable periods to attract more traders.
• DeFi Protocol Integrations: Liquidity that falls outside the active price range can now be automatically reinvested into AAVE, Yearn, or other protocols, rather than remaining idle as it did in v3.
• MEV Protection: Hooks can modify transaction sequencing, reducing the risk of MEV (Maximal Extractable Value) attacks, where bots manipulate transactions for profit.

Before v4, Uniswap set the rules, and developers could only use its predefined framework. Now, they can create custom versions of Uniswap, designing liquidity pools to fit specific needs.

Hooks take decentralized exchanges to a new level of flexibility, turning Uniswap into a platform for building custom DEX protocols. It’s like an app store for DeFi, where anyone can develop their own product on top of Uniswap.

Singleton Contract: Streamlining Infrastructure

In Uniswap v4, all liquidity pools are managed by a single smart contract—PoolManager.sol. This fundamental shift makes the protocol more cost-efficient, faster, and easier to manage.

Previously, each trading pair in Uniswap required a separate contract. As a result, this led to high gas fees and made cross-pool interactions more complex. Now, v4 replaces this model with a singleton design, where all pools operate within one contract.

Benefits of the singleton design include:

1. Lower Pool Creation Costs. In v4, new liquidity pools are created within a single contract, making the process significantly cheaper in 99.99% of cases.
2. More Efficient Swaps. In previous versions, multi-pool swaps (e.g., ETH → USDC → DAI) required separate token exchanges at each step, increasing fees. Now, all swaps happen within a single contract, reducing gas costs and speeding up transactions.
3. Easier Upgrades and Scalability. Uniswap developers no longer need to modify thousands of contracts to implement new features. Now, all updates occur within one central contract.

As a result, the singleton design removes the key limitations of Uniswap v3, making the infrastructure more streamlined, cost-effective, and easier to manage. 

Moreover, when combined with hooks, it turns Uniswap into a fully customizable DeFi framework, where every element can be tailored to suit the specific needs of users and developers.

Read more: Uniswap’s Unichain L2 Is Now Live on Mainnet!

Flash Accounting: Reducing Transaction Fees

Uniswap v4 introduces flash accounting, a new settlement system designed to lower gas fees by eliminating unnecessary token movements within the protocol.

In previous versions of Uniswap, each transaction involved multiple separate transfers. For example, when swapping ETH → USDC → DAI, Uniswap would first convert ETH to USDC then USDC to DAI, and only after that send the final balance to the user. 

As a result, each step required a separate token movement, which increased gas costs.

Now, instead of multiple intermediate transactions, all balance changes are tracked within the contract first, and the actual token transfer happens only at the final settlement.

How flash accounting enhances the Uniswap experience:

1. Lower Gas Fees = More Cost-Effective Trades. Uniswap eliminates unnecessary token movements, significantly reducing fees, especially for complex multihop swaps (trades that route through multiple liquidity pools).
2. Optimized Multihop Swaps. Instead of transferring tokens at each step of a swap, the system processes all operations internally and executes a single final transfer. 
3. More Efficient Liquidity Utilization. With flash accounting, liquidity is used more effectively, as it is no longer locked in unnecessary intermediate token transfers.

Flash accounting addresses one of Uniswap v3’s biggest challenges—high fees for complex trades. Now, traders can execute longer swap routes without excessive gas costs, while liquidity providers benefit from more efficient trade execution with lower overhead.

Read more: What is Unichain: Uniswap’s L2 Blockchain and Its Architecture

Dynamic Fees: Real-Time Market Adjustment

Uniswap v4 introduces a dynamic fee system that automatically adjusts to market conditions. Instead of fixed rates, liquidity pool fees can now fluctuate based on volatility, liquidity, and trading demand.

In previous versions of Uniswap, fees were rigidly set at 0.05%, 0.3%, or 1%, depending on asset risk and type. V4 replaces this with a flexible model, allowing fees to increase or decrease in real time.

For example, during high volatility, fees can increase to compensate liquidity providers (LPs) for the added risk. Conversely, in calm market conditions, fees can decrease, attracting more traders and boosting trading volume.

Why dynamic fees in Uniswap v4 are a major step forward:

1. LPs earn more during volatility. Fees rise alongside market activity.
2. Traders benefit from more favorable conditions. Reduced fees in stable conditions encourage more trading.
3. Adaptive pricing instead of fixed rates. Fees adjust automatically based on market conditions, eliminating the need for manual adjustments.

Previously, Uniswap v3 couldn't efficiently manage fees. LPs earned too little in calm market conditions, while fees remained unchanged even during sharp volatility spikes.

With v4, this problem is solved: fees now adjust dynamically to market conditions, making the DEX more efficient and attractive for traders and liquidity providers.

Native ETH Support: Easier, Cheaper, and More Convenient

In Uniswap v4, traders no longer need to wrap ETH into WETH before making a trade. Now, the exchange supports native ETH, reducing costs and improving user experience.

Previously, swapping ETH required converting it to WETH (wrapped ETH) first, as Uniswap v1–v3 only supported ERC-20 tokens. This extra step added unnecessary transactions, increased gas fees, and made trading less convenient.

How Uniswap has improved with native ETH support:

• Users no longer have to spend extra on ETH → WETH swaps and vice versa.
• ETH transactions now work just like any other token, with no extra steps required.
• Traders and developers don’t need to differentiate between ETH and WETH anymore.

As a result, native ETH support removes the unnecessary complexity found in all previous Uniswap versions. This improvement streamlines trading, lowers gas fees, and enhances the overall user experience on the DEX.

Related: What is DEX and How Does It Work in Crypto Trading?

New ERC-6909 Standard for Liquidity Management

Uniswap v4 transitions to the ERC-6909 token standard, replacing ERC-721, which was previously used for liquidity management in v3. This upgrade makes liquidity provisioning cheaper, more flexible, and easier to manage.

In Uniswap v3, LP positions were represented as NFTs (ERC-721). While this allowed for custom liquidity parameters, it also introduced several drawbacks:

• High gas fees for opening and adjusting positions.
• Challenges in asset management for algorithmic strategies and automation.
• Limited liquidity. ERC-721 lacked fractional ownership support, making it difficult to use LP positions as collateral in other DeFi protocols.

In v4, this is addressed by adopting ERC-6909—a new multi-token standard that offers greater flexibility and efficiency.

The transition to ERC-6909 makes liquidity management more cost-effective and user-friendly. This new standard overcomes the key limitations of ERC-721, reducing unnecessary gas costs and expanding asset management capabilities. 

Related: ERC-20, BEP-20, TRC-10: What Are the Token Standards?

Major upgrades in Uniswap v4:

1. Lower Costs for Adding and Removing Liquidity. ERC-6909 optimizes data storage and reduces the number of operations, cutting gas fees.
2. Flexible Asset Management. Liquidity positions can now be split, transferred, and used in DeFi apps (e.g., for lending).
3. Easier Implementation of Algorithmic Strategies. ERC-6909 enables automated liquidity management, making it more efficient for professional LPs and market makers.

As a result, ERC-6909 makes Uniswap v4 more efficient, cost-effective, and user-friendly for liquidity providers. It removes previous limitations and expands Uniswap’s integration potential within DeFi apps.

Uniswap V4: A New Era for DeFi

Uniswap v4 isn’t just an upgrade—it’s a fundamental redesign of decentralized exchanges. Its new approach to infrastructure and liquidity management reshapes the way DEXs operate, making them more flexible, efficient, and cost-effective.

Hooks enable developers to customize liquidity pools, automate trades, and mitigate MEV risks. Meanwhile, the singleton contract and flash accounting reduce gas fees by eliminating unnecessary token transfers, while dynamic fees make Uniswap more adaptive. As a result, LPs earn more during volatility, and traders benefit from lower costs in stable market conditions.

Uniswap v4 is a game-changer, setting a new benchmark for decentralized exchanges. While the transition from v3 may take time, its long-term potential positions v4 as a key pillar of DeFi’s future.

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