Uniswap V4 provides a powerful "hooks" tool but with greater risks

Source: Tim Craig, dlnews Compilation: Jinse Finance, Shan Ouba

Summary

• The functionality of "hooks" will allow developers to build new functionality on top of the Uniswap protocol.
• However, hooks may also create a new avenue for scammers to steal users' tokens.

Uniswap, the largest decentralized exchange in cryptocurrencies with over $3.7 billion in deposits, released the white paper for its latest version, Uniswap v4.

The latest release opens up a whole host of new possibilities for developers through "hooks," additional snippets of code that allow developers to build functionality directly on top of the Uniswap protocol, such as limit orders, time-weighted token purchases, and Market volatility adjustment fee system.

But hooks can also make decentralized finance (DeFi) -- a "wild west" where almost anything can happen -- more dangerous for users.

“They also raise a whole host of issues from a security standpoint,” Andrey Shevchenko, developer of decentralized exchange Diffuse Finance, told DL News.

Evil Developer

Shevchenko said hooks could allow nefarious developers to create new ways to steal user tokens.

“The problem is that all of this will be hosted on Uniswap’s backend, and possibly the frontend — so there’s a lot of risk for people to be tricked into thinking it’s a trustworthy brand product,” Shevchenko said.

Previous versions of Uniswap allowed anyone to create their own trading pool. While this feature helps attract users and embrace the permissionless ethic of decentralized finance (DeFi), it also makes it easy for scammers to create transaction pools for malicious tokens.

“There are definitely risks,” Kassandra, CTO of Arrakis Finance, a DeFi protocol built on top of Uniswap v3, told DL News. "Anything that becomes more modular, like hooks, can be great, but of course there are people who can build malicious hooks."

make a concession

Gimaltdinov said that in addition to limit orders, time-weighted token purchases and dynamic fees, hooks can also be used to keep stablecoins at the correct price and help the lending market liquidate non-paying positions.

However, since Uniswap v4 is largely focused on hooks, the protocol has made concessions in other areas.

According to Shevchenko, Uniswap is giving up on improving its trading algorithms and leaving this task to other projects to do it themselves by using hooks. The benefit of this strategy, he said, is that DeFi liquidity should be concentrated on Uniswap rather than scattered across multiple different exchanges.

"What would have been five different decentralized exchanges, with separate pools and no 'critical mass' to support a normal-sized exchange, became one exchange," Shevchenko said. "

Other developers have also highlighted that Uniswap v4 will help centralize liquidity in one place, which means better transaction prices for users.

“This will reduce the reason for teams to build their own decentralized exchange on their own and increase the reason to build on top of Uniswap,” Timeless Finance developer Zefram Lou told DL News. Timeless Finance is a DeFi protocol integrated with Uniswap v3.

However, since hooks have the potential to become a new foundation for other developers to build applications on, there may be little room for improvement left for Uniswap itself.

“It’s a nice upgrade for the space as a whole. I expect they’ll focus on their wallets after this — this really seems to be the finishing touch for their smart contract work,” Shevchenko said.