The Innovation of Uniswap V4: Beyond the Traditional "Plugin" Mechanism

Recently, I have been conducting some fund storage operations on Uniswap V4, which prompted me to delve into Uni's new feature - the "plugin" mechanism. Interestingly, many people have privately expressed to me that the launch of V4 did not bring them the same sense of amazement as the launch of V3. This is mainly because the concept of "plugin" itself is too abstract and difficult to understand intuitively.

Instead of directly translating Hook as "hook", it is better to understand it as a flexible plugin system. The main purpose of these plugins is to add some new features beyond the original functionality of Uni to the liquidity pool. Although the official documentation provides a detailed description of the timing for invoking the plugins, most users are more concerned about the specific functions that the plugins can achieve.

Diversified applications of plugins

The flexibility of the plugin system is reflected in multiple aspects:

1. You can restrict specific addresses from using certain liquidity pools, such as ETH-USDT.
2. Ability to dynamically adjust transaction fees based on market activity.
3. It can even change the traditional X*Y=K pricing curve, providing more possibilities for liquidity.

In short, this system allows developers to freely create various features that Uni officials might not consider, somewhat similar to the mod community on gaming platforms, injecting new vitality into the ecosystem.

This transformation also introduces new profit models for the ecosystem. In addition to traditional liquidity providers and traders, script developers now have a profit space as well. Developers can create plugins and charge fees when others use them. Each pool can use one plugin, but a plugin can be subscribed to by multiple pools, significantly reducing marginal costs.

Platforms specifically showcasing the profitability of various plugins have emerged in the market. Among them, a plugin called Flaunch is particularly popular, and it is reported that its developers have already achieved substantial earnings.

A typical application of the Flaunch plugin is to allow for the creation of meme coin pools, where a large portion of the transaction fees (e.g., 80%) is directly allocated to a designated wallet, while the remaining portion is used for buybacks. This provides token issuers with a more flexible profit distribution method.

It is worth mentioning that this innovation has also attracted the attention of competitors. Other trading platforms have also begun to introduce similar features, demonstrating the potential and influence of the plugin system in the decentralized trading space.

Overall, the plugin system, as the core innovation of Uniswap V4, not only expands the functional boundaries of the platform but also brings new possibilities and challenges to the entire DeFi ecosystem. Its emergence fully demonstrates the importance and innovation of the V4 version.