Uniswap V4 vs V3: What's New and How It Affects Liquidity Providers
Uniswap V4 represents the next evolution of automated market makers, introducing powerful new features like hooks, singleton architecture, and flash accounting. For liquidity providers, V4 brings both opportunities and new considerations. Understanding what's changing and how it affects your LP strategy is essential for staying ahead in DeFi.
This guide explains exactly what's new in Uniswap V4, how it compares to V3, and what liquidity providers need to know. You'll learn about hooks, singleton architecture, gas improvements, and how these changes affect LP returns, strategies, and position management.
By the end, you'll understand whether V4 is right for your LP strategy and how to prepare for the transition.
What Is Uniswap V4?
Uniswap V4 is the next major version of the Uniswap protocol, introducing a modular architecture that allows for custom pool logic through "hooks" and significant gas optimizations through a "singleton" contract design.
Key innovation: V4 is more flexible and customizable than V3, allowing developers to create pools with custom behaviors while maintaining the core AMM functionality.
Status: V4 is in development/testing phase (as of 2024). It's not yet live on mainnet, but understanding it now helps you prepare.
Major Changes: V4 vs V3
Change #1: Singleton Architecture
V3 approach:
- Each pool is a separate contract
- Creating pools costs gas
- Interacting with pools costs gas per pool
V4 approach:
- All pools share one "singleton" contract
- Pools are created as data structures, not contracts
- Much cheaper to create and interact with pools
Gas savings:
- Creating a pool: 99% cheaper (from ~$50,000 gas to ~$500 gas)
- Swapping: 50-70% cheaper (fewer contract calls)
- Adding liquidity: 30-50% cheaper
Impact for LPs:
- Lower gas costs = higher net returns
- More pools to choose from (cheaper to create)
- Better for smaller positions (gas matters less)
Example:
V3:
- Add liquidity: $40 gas
- Remove liquidity: $30 gas
- Total: $70
V4:
- Add liquidity: $20 gas
- Remove liquidity: $15 gas
- Total: $35
Savings: $35 (50%)—significant for frequent transactions.
Change #2: Hooks (Custom Pool Logic)
What are hooks?
Hooks are customizable functions that execute at specific points in a pool's lifecycle, allowing developers to add custom logic to pools.
Hook types:
- Before initialize: Custom pool setup
- After initialize: Post-setup logic
- Before swap: Pre-swap logic (e.g., dynamic fees)
- After swap: Post-swap logic (e.g., fee distribution)
- Before modify position: Pre-LP logic
- After modify position: Post-LP logic
- Before donate: Pre-donation logic
What hooks enable:
1. Dynamic fees:
- Fees that adjust based on volatility
- Fees that change with time of day
- Fees that respond to market conditions
2. Custom oracles:
- Pools can use custom price feeds
- More accurate pricing for exotic pairs
- Better for LPs (more accurate IL calculations)
3. Time-weighted average liquidity:
- Rewards LPs based on time in pool
- Encourages long-term liquidity
- Better for passive LPs
4. Limit orders:
- Execute swaps at specific prices
- More trading functionality
- Better price execution
5. Geomean oracles:
- More accurate price feeds
- Better for complex strategies
- Reduced oracle manipulation risk
Impact for LPs:
Opportunities:
- Pools with better fee structures
- More accurate IL calculations
- Rewards for long-term liquidity
- Better tools and analytics
Considerations:
- Need to understand hook logic
- Some hooks might favor certain LPs
- More complexity to evaluate pools
Example hook: Dynamic fees
V3: Fixed 0.05% fee tier
V4 with dynamic fee hook:
- Low volatility: 0.03% fee
- Medium volatility: 0.05% fee
- High volatility: 0.10% fee
Result: LPs earn more during volatile periods (when they take more risk).
Change #3: Flash Accounting
V3 approach:
- Each swap settles immediately
- Multiple contract calls
- Higher gas costs
V4 approach:
- Batches multiple operations
- Settles net balances at end
- Much cheaper gas
Gas savings:
- Multi-hop swaps: 70-80% cheaper
- Complex routing: 60-70% cheaper
Impact for LPs:
- Traders pay less gas = more volume
- More volume = more fees for LPs
- Better routing = better prices
Change #4: Native ETH Support
V3 approach:
- Must wrap ETH to WETH
- Extra step and gas cost
- More complexity
V4 approach:
- Native ETH support built-in
- No wrapping needed
- Simpler and cheaper
Impact for LPs:
- Easier to provide ETH liquidity
- Lower gas costs
- More ETH pools available
Change #5: Improved Price Ranges (V3 Concept Enhanced)
V3:
- Concentrated liquidity ranges
- Fixed tick spacing
- Manual range management
V4:
- Same concentrated liquidity concept
- More flexible tick spacing (via hooks)
- Better tools for range management
- Hooks can automate range adjustments
Impact for LPs:
- Same V3 benefits (capital efficiency)
- Potentially better range management
- Automated strategies possible
How V4 Affects Liquidity Providers
Gas Cost Improvements
The biggest win for LPs: Significantly lower gas costs.
Real impact:
Small positions ($2,000):
- V3 gas impact: 30-40% of returns
- V4 gas impact: 15-20% of returns
- Makes small positions viable
Medium positions ($10,000):
- V3 gas impact: 5-8% of returns
- V4 gas impact: 2-4% of returns
- Better net returns
Large positions ($50,000):
- V3 gas impact: 1-2% of returns
- V4 gas impact: 0.5-1% of returns
- Minimal but still better
Bottom line: V4 makes LPing more profitable for all position sizes, especially smaller ones.
More Pool Options
V3: Limited pool types (standard AMM pools)
V4: Unlimited pool types (via hooks)
What this means:
- More pools to choose from
- Pools optimized for specific use cases
- Better matching of LP strategy to pool type
Examples:
- Pools with time-weighted rewards (for passive LPs)
- Pools with dynamic fees (for volatile markets)
- Pools with custom oracles (for exotic pairs)
Impact: LPs can find pools that match their strategy better.
Better Tools and Analytics
V3: Basic pool data, manual tracking
V4: Hooks enable better analytics
- More accurate IL calculations
- Better fee tracking
- Custom metrics per pool
Impact: LPs can make better decisions with better data.
New Risks and Considerations
1. Hook complexity:
- Need to understand what hooks do
- Some hooks might have bugs
- More code = more attack surface
2. Hook manipulation:
- Malicious hooks could exploit LPs
- Need to audit hook code
- Trust in hook developers
3. Migration complexity:
- V3 positions need migration
- Learning curve for new features
- Potential for mistakes during transition
Mitigation:
- Only use audited hooks
- Start with simple pools
- Use trusted tools and interfaces
Should You Switch to V4?
Switch to V4 If:
1. You have small positions (< $5,000)
- Gas savings are significant
- Makes LPing viable
2. You make frequent transactions
- Gas savings add up
- Better ROI over time
3. You want to try new pool types
- Hooks enable new strategies
- Early adopter benefits
4. You're starting new positions
- No migration needed
- Start fresh with V4
5. Gas costs are eating your returns
- V4 solves this problem
- Better net profitability
Stay on V3 If:
1. You have large positions (> $50,000)
- Gas impact is minimal anyway
- V3 is proven and stable
- Migration risk not worth it
2. You're passive and don't transact often
- Gas savings don't matter much
- V3 works fine for you
3. You don't want to learn new features
- V3 is simpler
- Less complexity
4. V4 is still in early stages
- Wait for audits and stability
- Let others test first
5. Your current V3 positions are profitable
- Don't fix what isn't broken
- Migration has costs and risks
Migration Strategy
If you decide to migrate:
Step 1: Wait for V4 mainnet launch and audits
- Don't rush to migrate
- Let others test first
- Wait for security audits
Step 2: Start with small positions
- Test V4 with small amounts
- Learn the new features
- Understand hook behavior
Step 3: Evaluate hook-based pools carefully
- Read hook documentation
- Understand what hooks do
- Only use audited hooks
Step 4: Use trusted interfaces
- Don't interact directly with contracts
- Use official Uniswap interface
- Use trusted third-party tools
Step 5: Track your returns
- Compare V3 vs V4 performance
- Monitor gas savings
- Evaluate if migration was worth it
Track your LP positions with PoolShark to compare V3 and V4 performance and see if migration makes sense for your strategy.
Real Examples: V4 vs V3 Comparison
Example 1: Small Position, High Gas Impact
Position: $3,000 in ETH/USDC pool
- APR: 25%
- Annual fees: $750
V3 gas costs:
- Add: $35
- Remove: $25
- Collect (monthly): $12 × 12 = $144
- Total: $204
V3 net return:
- Gross: $750
- Minus gas: -$204
- Net: $546 (18.2% APR)
V4 gas costs:
- Add: $15
- Remove: $10
- Collect (monthly): $5 × 12 = $60
- Total: $85
V4 net return:
- Gross: $750
- Minus gas: -$85
- Net: $665 (22.2% APR)
V4 improvement: +4% APR (22% better net returns)
Example 2: Medium Position, Moderate Impact
Position: $15,000 in ETH/LINK pool
- APR: 30%
- Annual fees: $4,500
V3 gas costs:
- Add: $40
- Remove: $30
- Collect (quarterly): $15 × 4 = $60
- Total: $130
V3 net return:
- Gross: $4,500
- Minus gas: -$130
- Net: $4,370 (29.1% APR)
V4 gas costs:
- Add: $20
- Remove: $15
- Collect (quarterly): $8 × 4 = $32
- Total: $67
V4 net return:
- Gross: $4,500
- Minus gas: -$67
- Net: $4,433 (29.5% APR)
V4 improvement: +0.4% APR (small but still better)
Example 3: Active V3 Management
Position: $20,000 in ETH/USDC V3
- APR: 35%
- Annual fees: $7,000
- Range adjustments: Quarterly
V3 gas costs:
- Add: $50
- Remove: $40
- Collect (monthly): $18 × 12 = $216
- Adjust ranges: $30 × 4 = $120
- Total: $426
V3 net return:
- Gross: $7,000
- Minus gas: -$426
- Net: $6,574 (32.9% APR)
V4 gas costs:
- Add: $25
- Remove: $20
- Collect (monthly): $9 × 12 = $108
- Adjust ranges: $15 × 4 = $60
- Total: $213
V4 net return:
- Gross: $7,000
- Minus gas: -$213
- Net: $6,787 (33.9% APR)
V4 improvement: +1% APR (significant for active management)
The Bottom Line: V4 for LPs
Key takeaways:
-
V4 significantly reduces gas costs
- 50-70% cheaper swaps
- 30-50% cheaper LP operations
- Makes small positions viable
-
Hooks enable new pool types
- Dynamic fees
- Custom oracles
- Time-weighted rewards
- More options for LPs
-
Better tools and analytics
- More accurate IL calculations
- Better fee tracking
- Custom metrics
-
New risks to consider
- Hook complexity
- Need to audit hooks
- Migration costs
-
Migration strategy
- Wait for audits
- Start small
- Use trusted interfaces
- Track performance
When to migrate:
- Small positions benefit most (gas savings)
- Active management benefits (frequent transactions)
- New positions (no migration needed)
- After V4 is audited and stable
When to wait:
- Large positions (gas impact minimal)
- Passive strategy (V3 works fine)
- V4 still early (wait for stability)
- Current positions profitable (don't fix what works)
The best approach: Track your V3 positions, understand V4 features, and migrate when it makes sense for your strategy. Don't rush—wait for audits and stability, then start with small positions to test.
Start tracking your LP positions with PoolShark to compare V3 and V4 performance and see if migration makes sense for your strategy.
Common V4 Questions Answered
Q: When will Uniswap V4 launch?
A: V4 is in development/testing phase (as of 2024). Exact launch date TBD, but expect it in 2024-2025 after thorough audits and testing.
Q: Will I need to migrate my V3 positions?
A: Not necessarily. V3 will continue to work. You can:
- Keep V3 positions as-is
- Migrate to V4 when ready
- Use both V3 and V4
Migration is optional, not required.
Q: Are V4 hooks safe?
A: Depends on the hook. Only use:
- Audited hooks
- Hooks from trusted developers
- Hooks with clear documentation
Always audit hook code before using pools with custom hooks.
Q: Will V4 have the same pools as V3?
A: V4 will have:
- Standard pools (like V3)
- New hook-based pools
- More pool variety
V3 pools will continue to exist, but V4 will have more options.
Q: Should I wait for V4 before LPing?
A: No. V3 works great now. You can:
- Start LPing on V3
- Learn the basics
- Migrate to V4 later when ready
Don't wait—start learning and earning now.
Q: How much will gas costs decrease?
A: Estimates:
- Creating pools: 99% cheaper
- Swapping: 50-70% cheaper
- LP operations: 30-50% cheaper
Exact savings depend on implementation, but significant reductions are expected.
Final Thoughts
Uniswap V4 represents a significant evolution of the protocol, bringing gas savings, new features, and more flexibility. For liquidity providers, V4 offers opportunities to reduce costs and access new pool types, but also introduces new complexity and considerations.
The key is understanding what V4 offers, evaluating whether it makes sense for your strategy, and migrating when the time is right. Don't rush—wait for audits and stability, start with small positions, and track your performance to see if V4 delivers on its promises.
For now, V3 works great, and there's no rush to migrate. But understanding V4 now helps you prepare for the future and make informed decisions when the time comes.
Start tracking your LP positions with PoolShark to compare V3 and V4 performance and see if migration makes sense for your strategy. You'll understand which version works best for your LP goals and how to optimize your returns as Uniswap evolves.