How can the user experience of exchanges be optimized? What does Uniswap bring to the table?

The goal of Uniswap has always been to provide the best trading experience. With the development of the cryptocurrency market and the leading products, the Uniswap team continuously ponders on what exactly the "user experience of DEX" is. The team has identified the two most crucial factors — liquidity and trading price, and takes action accordingly. Conclusion

What is the user experience of exchanges

In addition to becoming the market leader, Uniswap aims to be the best exchange. This requires providing a good user experience, which the team believes is made up of two main elements in decentralized exchange user experience:

• Liquidity: The higher the liquidity utilization efficiency, the better

• Trading prices: Finding the best trading route possible

These two factors affect each other. The best price is easy to measure, but there needs to be enough liquidity at the same time. Only then can users find the best trading route and have the best user experience.

With flexible and secure settings and services for tokens, liquidity pools, and transaction fees, more liquidity providers can be attracted, making liquidity at its best. Each subsequent version of Uniswap gradually offers more complex functions to improve liquidity usage efficiency.

However, although liquidity efficiency continues to be optimized, the increasing complexity and customizability of liquidity pools make it increasingly difficult for traders to find the best price trading route. For example, when there are different trading models, fee levels, oracle types, order forms, or even blockchains in the market, the more choices available, the more complex it becomes for traders to find the best trading route.

As the market evolves, finding the best trading route and liquidity have become two separate but related issues. Uniswap Labs attempts to address both separately:

• Uniswap v4: Providing the best liquidity. Allowing users to build custom AMM functions with hooks, such as setting custom transaction fees or new trading models.

• UniswapX: Providing the best trading routes. Outsourcing the complexity of routing to an open Filler network, allowing Fillers to compete to provide the best price from various liquidity sources.

These two protocols complement each other to help users provide the best trading experience.

Uniswap v4: Optimal Liquidity

Uniswap v1 was originally an experiment to test the viability of the asymmetric trading model AMM. The success in the long-tail token markets such as MKR and DAI proved its value, surpassing the then-decentralized exchange leader dYdX to become the market leader. But what's next?

To provide a better trading experience, Uniswap has always aimed at providing better liquidity. In the v2 version, ERC-20 token pairs were built to increase the efficiency of token trading; in v3, an aggregated trading model was introduced to increase liquidity utilization efficiency in an innovative way.

In the recent Uniswap v4 update direction, by using smart contracts similar to plugins - hooks, the operation of liquidity pools is changed, significantly increasing the variability and flexibility of liquidity pools. This allows users to customize the operation rules of liquidity pools, not limited to the official design. For example, when creating a liquidity pool, users can customize the transaction fees, withdrawal fees, or even the trading model of the liquidity pool.

Through hooks, the Uniswap v4 trading model includes various new mechanisms such as TWAMM, time-weighted average transaction model, and on-chain limit order transaction model, allowing developers with ideas to build on top of Uniswap's liquidity and security, rather than creating new protocols.

All these efforts will successfully allow Uniswap to provide better liquidity but make providing "the best trading route for traders" more challenging.

UniswapX: Best Price

Finding the best route depends on the range of liquidity coverage. The more liquidity there is, the more choices there are to find the best route, naturally resulting in better trading prices. This is why DEX aggregators and meta-aggregators are popular because of their extensive liquidity coverage.

However, as the range of liquidity pools to be managed continues to expand with market development, whether in terms of token types, blockchain numbers, or trading model numbers, manual maintenance by the team of a single routing engine is ultimately unsustainable. Aggregators face growth bottlenecks due to the need to continuously maintain the combinability of different liquidity pools. With the use of Uniswap v4, maintenance will become even more challenging, as each hook used by every liquidity pool needs to be individually searched, audited, and ultimately integrated for use.

Uniswap's proposed solution is to marketize "liquidity discovery" and let the market compete and respond, rather than being maintained by a single team. Instead of accepting quotes from a single source, the auction system allows Fillers in the market to compete.

UniswapX is a protocol focused on the trading route issue. It outsources the challenge of finding the best trading route to a competitive market that understands liquidity and resource distribution across various chains to find the best trading price for traders.

This market competition is fierce. Fillers are encouraged to provide lower quotes using any strategy available. They can offer MEV kickbacks to traders, find obscure liquidity sources, utilize private or even their own liquidity - anything that gives them an advantage to win the auction.

UniswapX transforms routing from a one-to-one problem into a one-to-many problem, standardizes market participants, and sets basic rules for Fillers to compete, successfully returning value to traders and obtaining the best trading route and price.

Conclusion

Uniswap v4 and UniswapX are parallel and complementary protocols. Each focuses on specific issues but complements each other:

• Uniswap v4 optimizes the customizability of liquidity pools to increase liquidity efficiency

• UniswapX optimizes trading routes to optimize trading prices

Together, they provide traders with the best user experience while maintaining the commitment to decentralization, censorship resistance, and permissionlessness, enhancing the future possibilities of decentralized exchanges.