Arcadia and Uniswap v4

What Uniswap v4 brings (hooks, customizable pools, gas savings), impact on traders, LPs, and protocols. How Arcadia positions itself as an intelligent Liquidity Management Layer / aggregator for LPs a

Source: Arcadia Finance Blog

What is Uniswap v4

Uniswap v4 is the next iteration of the Uniswap Protocol, the leading EVM-based Decentralized Exchange (DEX).

Next to serious gas savings, the main difference compared to previous versions is that v4 is a customizable platform. When dev teams want to iterate or modify the Uniswap protocol, they no longer need to fork and modify the Uniswap code base, coming with all its security risks. Instead they can add custom logic on top of v4, or even replace certain parts of the code base. They do this through modular plugins better known as "hooks".

Hooks can be built for creating pools, swapping, adding liquidity and/or removing liquidity in any combination.

Some examples are: new order types for traders, dynamic fees that react on market conditions, new ways to incentivise liquidity, built-in oracles, different bonding curves, lifecycle management, built-in compliance... In short the possibilities are endless.

V4 for Traders

Focusing on the traders (swappers) first, v4 will result in overall better execution prices. Different hooks will implement different fee and liquidity dynamics, or have custom bonding curves, optimised for certain token pairs and market conditions.

For each market condition and token pair, there will be a combination of optimal v4 pools to swap through. This also means there will be an explosion in the number of pools for each token pair, possibly 100+ pools for the same pair on the same chain (for comparison, in Uniswap v2 there is just a single pool per token pair, or in Uniswap v3 there are only 1 to 3 pools per pair).

The beauty of the current state of DeFi is that you as a swapper shouldn't need to know which pools to choose! DEX aggregators like 1inch, Odos, Paraswap... have made it their whole business model to optimize the routing of swaps as efficiently as possible. The new v4 pools offer extra options, resulting in better prices.

V4 for Liquidity Providers

For Liquidity Providers the story is similar, v4 will result in higher yields. Certain hooks will optimize to make providing liquidity in certain market conditions for certain token pairs as capital efficient as possible. Some might give LPs extra liquidity incentives, capture and distribute some MEV etc.

So again for each token pair in each market condition there will be interesting high yield opportunities for Liquidity Providers. And likewise, even for the same token pairs there will be 100+ different pools.

Again the question arises, how should LPs know which pools to choose and how should they manage and move liquidity, given changing market conditions or changes in portfolio objectives?

This is where Arcadia plays a crucial role. Arcadia is an intelligent Liquidity Management Layer for DEX ecosystems.

Arcadia can be thought of as an aggregator across DEXs for Liquidity Providers, just like Odos is an aggregator across DEXs for traders. There are some differences (swaps are atomic, providing liquidity not etc.), but the aggregator analogy is still a good mental model.

As abstraction layer above the DEXs, Arcadia helps Liquidity providers to:

• Choose between all the different options based on objective onchain data.

• Provide optimised and curated LP strategies for given token pairs and market conditions.

• Move liquidity in/out/between different v4 pools.

• Automate management of liquidity (auto-compounding, auto-rebalancing, stop-losses...).

• Depending on the underlying assets, let users borrow against liquidity positions.

• In the future: offer recommendations how to hedge given positions.

With Arcadia, Liquidity Providers can enjoy the higher yields Uniswap v4 will bring, without having to worry about the additional complexities.

V4 for Protocols and Tokens

Also for protocols, Uniswap v4 will bring novel ways they can incentivise liquidity for their token, or manage protocol owned liquidity. But just like with the traders and LPs, the fact there will be dozens of pools will bring some additional challenges.

What if the protocols for instance want to incentivise liquidity on Uniswap v4, without having to pick 'winners' (define per hook how much incentives they get)?

With the Arcadia liquidity management layer, protocols will be able to give incentives per unit of liquidity on Uniswap v4, regardless in which hook it ends up.