TL;DR Uniswap V4’s launch is a breakthrough moment for DeFi. As the space’s leading builders prepare to roll out their own Hooks, we detail some of the most promising designs developed by Arrakis and other teams.

Key Takeaways:

• Uniswap V4 is live and Hooks are set to bring an explosion of innovation to the DEX space.

• Many of the most promising Hooks so far are focusing on MEV awareness, yield generation, and capital efficiency to drive better outcomes for LPs.

• Arrakis is developing several Hooks and will also concentrate Arrakis Pro users’ liquidity across other solutions.

The Hooks era is here. Uniswap V4, the new solution from the largest onchain marketplace, went live last month, heralding a new era for DeFi. With the advent of customizable Hooks, UniV4 dramatically transforms the onchain liquidity landscape.

Arrakis is excited about Hooks because they create an abundance of new possibilities for deploying liquidity onchain. Hooks will usher in an explosion of new protocols and use cases and the early designs prove that.

Some Hooks bulls have likened this moment to Ethereum’s early days, when innovation flourished and builders had a blank canvas to bring their ideas to life. Uniswap is no longer just the DEX—it’s the foundational layer upon which new innovations will emerge.

Arrakis has been innovating on Uniswap for some time now, having mastered the complexities of concentrated liquidity on UniV3 to help teams improve their liquidity depth and returns. We’re proud to bring the same white glove liquidity management experience to UniV4.

Arrakis is developing several in-house Hooks to help projects manage their Protocol Owned Liquidity (POL), starting with the Arrakis Pro Private Hook. Arrakis Pro will also use other Hooks to help teams optimize their POL in the future. In this deep dive feature, we cover some of the most promising designs to look out for.

A51 Carbon

Optimized for: LPs seeking liquidity tooling

A51 Carbon offers various liquidity strategies that share similarities with existing Hook designs. Expanding on A51’s liquidity management offering on UniV3, A51 Carbon is a DEX that aims to become a platform that combines Hooks to cater to all LPs depending on their exact needs.

For example, LPs can adjust their liquidity position to shift based on market volatility, set fees to prevent MEV and LVR, auto-rebalance for expected price movements, deploy idle liquidity to accrue yield, hedge positions with loans and options, and offer incentives.

Arrakis Pro Private Hook

Optimized for: Token issuers and POL LPs

The Arrakis Pro Private Hook is an Arrakis Pro module that uses UniV4 to improve profitability for LPs. The Hook exclusively uses Arrakis liquidity with dynamic fees that respond to market volatility and inventory conditions.

UniV4’s `beforeAddLiquidity` logic is used to exclusively allow liquidity deposits from Arrakis’ module while the `beforeSwap` logic to customize swap fees. This configuration offers a way to set dynamic fees, which are useful for protecting the inventory and preventing MEV. Lower fees can help replenish the inventory because they incentivize trading in one direction and higher fees can help prevent MEV because they disincentivize arbitrage.

The Hook can adjust fees to internalize arbitrage because it is aware of offchain pricing on CEXs. When fees are low, prices have less time to deviate from the market price and LPs are protected from LVR. When fees are high, arbitrage is not profitable.

The Arrakis Pro Private Hook offers LPs maximal capital efficiency and increased fee capture with MEV protection in a fully non-custodial user experience.

This is the first Arrakis Pro module on UniV4. However, we are developing other in-house Hooks and will also concentrate liquidity across other Hooks to meet the needs of token issuers.

Bunni

Optimized for: LP profitability

Bunni’s Hook uses programmabile liquidity and rehypothecation to generate better returns for LPs. Bunni implements a number of features that let LPs deploy liquidity strategies and generate yield while staying protected from MEV.

One of these features is Liquidity Density Functions, which build on Uniswap’s concentrated liquidity capabilities to determine how liquidity gets distributed across ticks. LDFs distribute liquidity across ticks in a single position and allow for swaps with constant gas costs. Liquidity can be deployed in complex shapes according to the LP’s strategy.

Bunni’s Shapeshifting feature lets LPs dynamically adjust their LDF positions, either by shifting liquidity across ticks, altering the shape, or creating a new shape. This allows LPs to use strategies like increasing the concentration around a specific price point (to maximize fee revenue) and increasing the range when volatility is high (to minimize risk).

Bunni also offers Autonomous Rebalancing to adjust positions when the ratio between two tokens becomes imbalanced after Shapeshifting. The pool calculates excess liquidity after swaps and broadcasts an intent for a swap when there is an imbalance.

Bunni adopts an MEV-aware design, using the am-AMM mechanism to recapture MEV in auctions and dynamic swap fees to protect LPs in volatile periods. Moreover, Bunni deploys idle liquidity in protocols like Aave and Yearn to generate yield for LPs.

Bunni’s approach is to use the flexibility of Hooks and concentrated liquidity to make LPs more profitable. In that sense, it shares some similarities with our own Hook designs. Arrakis Pro is developing Hooks that improve outcomes for LPs but we can also deploy liquidity across the Hooks that help LPs optimize their liquidity best.

Cork Protocol

Optimized for: LST holders and traders

Cork is aiming to bring Credit Default Swaps onchain with so-called “Depeg Swaps.” This feature is designed to price the risk of pegged assets, which often deviate from the price of their underlying asset.

Depeg Swaps let users protect their liquidity because they offer a way to hedge with an immediate liquidity guarantee in case of a depeg event. LPs can also use Cork to earn yield and fees and traders can profit from trading risk premiums when they’re underpriced or overpriced.

How Cork works. Users can hedge depeg risk with Depeg Swaps because they can use them to redeem a Pegged Asset 1:1 with its underlying Redemption Asset (Source: Cork)

Cork has built a customized AMM using a UniV4 Hook. When LPs deposit liquidity into the Liquidity Vault, it gets provided to the Hook. This Hook also facilitates the trading of Depeg Swaps and Cover Tokens.

The AMM uses the Cover Token and Redemption Asset as the trading pair and liquidity gets concentrated while supporting a sufficiently wide range to take account of depeg risk. For this reason, the liquidity curve uses a constant power sum “yield space” formula, where the interest rate (rather than the price) is a function of the reserves. Fees, meanwhile, are calculated using a Linear Decay Function because Depeg Swaps should usually decay in value as they approach expiry.

The AMM uses “flash swaps” to facilitate Depeg Swap trading. When an LP deposits liquidity, the Liquidity Vault deposits Depeg Swaps into a router and they’re used to fill buying volume, minimizing price impact and fees for users.

Cork’s design offers a clear view into how Hooks will unlock new use cases to support all kinds of assets. As more RWAs move onchain, it’s likely we could see such designs focused on risk hedging growing in popularity.

Degen Options by Semantic Layer

Optimized for: Onchain degens

Degen Options aims to incentivize trading volumes and reward active users. The core feature is a type of option, which gives traders the right to buy additional tokens at a fixed strike price ahead of expiry. LPs can use Hooks to deploy farms with set parameters, including the issuance:volume ratio and strike price. Traders receive an option based as an NFT based on their activity in the pool. Through this design, Degen Options hopes to incentivize trading volume in a way that benefits traders, token holders, and LPs.

Degen Options is an ambitious Hook that differs from other existing designs. One of the solution’s notable features is its focus on call options - traders are not issued put options as this could encourage mercenary dumping. While options are still yet to gain momentum in the onchain landscape and Arrakis Pro is unlikely to use this Hook, Degen Options shows the experimentation that’s set to unfold with Hooks over the coming years.

Doppler

Optimized for: Tier 1 token launches

Doppler is a liquidity bootstrapping solution that aims to enable decentralized, self-executing price discovery for all kinds of assets. Developed by Whetstone Research, Doppler’s core feature is a Dutch auction dynamic bonding curve mechanism, which sources two-sided liquidity and ensures accurate pricing. The Dutch auction determines a market clearing price, after which prices increase with demand. This design should disincentivize bot sniping and arbitrage attacks, a problem that still negatively impacts token issuers and LPs on traditional AMMs and alternative liquidity bootstrapping solutions today.

As Doppler lets token issuers set a launch price above the expected market price, it creates space for fair launches. However, token issuers can also launch at a low starting price, which mirrors how other tokens are launched on other popular launchpads today.

How Doppler’s Dutch auction dynamic bonding curve mechanism works. This design aims to make TGEs fair and enable price discovery for all kinds of assets. 

However, unlike other liquidity bootstrapping launchpads, Doppler does not burn any LP tokens. The liquidity gets generated in a module called the Liquidity Factory and then pulled to another module called the Migration Factory, where the funds are deposited into a generalized AMM position. Doppler implements measures to minimize MEV extraction while a vesting mechanism prevents token issuers from rugging buyers in the launch phase.

Flaunch

Optimized for: Memecoins

Flaunch will primarily function as a meme launchpad. The solution aims to make token launches fairer and less extractive by generating yield for LPs and returning trading fees to users. When tokens launch on Flaunch, they have a fixed price for the first 30 minutes then price discovery begins. During this period, tokens can not be sold, which protects early buyers.

One of Flaunch’s core features is an internal swap pool. This mechanism pays LPs in ETH (rather than ETH plus the token) while the token portion of the fee is used to fill the next order. As a result, users get better price execution and reduced sell pressure from LPs dumping their rewards. With Hooks, Flaunch also deposits ETH into Aave to generate yield for LPs, improving their capital efficiency.

Launching a token on Flaunch. Creators can choose the amount of fees they receive and the launch price stays fixed for the first 30 minutes (Source: Flaunch)

Memecoins have accounted for a massive chunk of onchain trading activity on this cycle and token launchpads have emerged as the big winners. The number of new tokens created will explode in the coming years and more launchpads will emerge because the prize for facilitating these launches is big. Flaunch leverages the flexibility of Hooks in a way that aims to reward users rather than extract value. The current landscape offers LPs and traders a suboptimal experience and this project is taking measures to fix that.

Meridian by Votre (FKA Collar Protocol)

Optimized for: Institutional liquidity

Votre (formerly known as Collar) is a lending platform that removes liquidation risk for borrowers. Collar stands for “COLlaborative Lending ARrangement” and it uses Variable Prepaid Forward contracts onchain, connecting borrowers and solvers to reach a loan agreement.

Loans are agreed upon offchain via an Offchain Intent Platform then settled onchain when the borrower accepts the solver’s onchain offer. Borrowers post collateral to take out a loan and solvers lend out assets to claim a portion of the collateral if the asset price declines.

If the asset price increases, solvers lose their collateral and borrowers have their maximum upside capped. This is because Votre swaps the borrower’s collateral into stablecoins to protect them from liquidation. Borrowers effectively put a cap on their maximum upside to avoid losing their entire collateral on the downside.

Votre offers borrowers tax advantages by allowing them access to capital without selling their assets and incurring a tax obligation. Asset-rich individuals and institutions frequently take out loans to defer taxes.

With the Meridian Hook, Votre is targeting institutional liquidity. UniV4’s customizable logic offers a way to whitelist addresses, so institutions can borrow or provide liquidity without risk of sanctions. This is a similar approach to other Hook designs that implement KYC verification.

By focusing on the institutional market, Votre hopes to give big players access to onchain lending while improving Uniswap’s volumes and liquidity.

Silicon Valley Fund by Semantic Layer

Optimized for: Autonomous LPing

Silicon Valley Fund (SVF) is the second Hook from Semantic Layer. SVF will use autonomous agents to operate funds, sharing some similarities with projects like DAOs.fun and Virtuals. SVF will let agents manage LP positions and swaps, with fund tokens used to influence the agent’s actions. Fund creators will be able to choose a category and input prompts for their agent and the agents will use real-world and onchain data to make informed decisions about how to manage the fund. The aim is to drive optimal returns for LPs and other users.

AI agents are a nascent innovation. Like the Hooks space, AI is still largely unexplored. While AI agents may fail to live up to their hype in the short term, there is no doubt that automation will bring more capital efficiency to onchain markets in the future. While it’s early for SVF, this concept will certainly flourish on liquidity solutions like UniV4 in the long term.

Tenor

Optimized for: Borrower and lenders

Tenor will focus on yield generation by building lending markets with Hooks. The solution will replace UniV3’s swap logic to let users swap ERC20s for fixed rate tokens through a custom interest rate AMM. In doing so, Tenor offers a way to earn yield on top of UniV4. This approach takes inspiration from Pendle, which issues users Principal Tokens to represent a yield-bearing asset. Tenor’s markets are built on top of Morpho.

To create a custom interest rate AMM, Tenor uses interest rate ticks, where each tick holds a balance of loan tokens and fixed rate tokens. Lenders and borrowers make transactions at specific interest rate ticks, which effectively creates an onchain order book. Lenders deposit loan tokens and receive fixed rate tokens while borrowers deposit collateral and receive fixed debt tokens representing their loan.

Users can set limit orders or make spot transactions in the pool. Users specify their tick with limit orders while spot loans and borrows are executed at the highest and lowest tick respectively.

Permissionless lending is one of DeFi’s killer use cases. Users participate in money markets because they seek yield and leverage. Tenor uses the flexibility of Hooks to help lenders generate yield on Uniswap, thereby improving their capital efficiency. By building on top of proven primitives like Morpho, Tenor also takes advantage of DeFi’s composability to give users better outcomes.

UniCast

Optimized for: RWAs and LSTs

UniCast aims to improve returns for LPs by factoring for predictable volatile events. When an event such as a Fed meeting is expected to create volatility, dynamic fees are applied to put a price on the volatility. Arbitrageurs pay this price and LPs accrue higher fees.

Additionally, LP positions are adjusted based on anticipated price changes. For example, when a regular rebasing event causes a price movement in the underlying assets, the LP’s position is rebalanced to take account of the price change. This mechanism is especially optimized for yield-bearing assets such as LSTs and RWAs.

UniCast came up with this design after observing activity in wstETH/stETH pools, where arbitrageurs take advantage of wstETH’s lag against the stETH price ahead of stETH’s daily rebasing events. But UniCast hopes to capture the RWA market as more assets move onchain and users increasingly seek yield on their holdings.

UniCast takes a similar approach to Arrakis and other solutions, using dynamic fees to disincentivize arbitrage and repay LPs. As more teams double down on MEV awareness, we can expect to see dynamic fees become more widely adopted in new Hook designs.

The difference with UniCast is its focus on expected price movements. This approach could help RWA issuers incentivize deep liquidity in the future.

Hooks and the DEX Renaissance

The flexibility of Hooks creates an abundance of opportunities for builders and DEX users. As many of the top early solutions prove, Hooks are particularly promising for LPs because they can implement liquidity strategies to improve returns. Early designs focused on RWAs and yield-bearing tokens also offer an early look into how we can expect the onchain liquidity landscape to evolve in the years ahead.

But it’s still early for this design space and the full potential of Hooks has not yet been unlocked. As early innovators in the Hook space, we are focused on using modifiable pools to manage onchain liquidity in the most capital-efficient manner, starting with the Arrakis Pro Private Hook. We also look forward to using other Hooks like Doppler in the future. Learn more about our plans for UniV4 here and use our contact form to learn about how we can cater to your POL needs.

References

• A51 Carbon Docs [A51 Finance]

• Arrakis x Uniswap V4 Is Here [@dreamsofdefi for Arrakis Finance]

• Bunni Docs [Bunni]

• Caps on How Flaunch is Revolutionizing Liquidity with Hooks [Uniswap Foundation]

• Collar Protocol Docs [Votre/Collar]

• Degen Options App [Semantic Layer]

• DEX Chen on Shaping the Future of DeFi through Permissionless Systems [Uniswap Foundation]

• Doppler: A liquidity bootstrapping ecosystem [Whetstone Research]

• Flaunch Docs [Flaunch]

• Introducing Degen Options [Semantic Layer]

• Introducing Silicon Valley Fund [Semantic Layer]

• Tenor Docs [Tenor]

• Uniswap Docs [Uniswap]

• Uniswap Hook Directory [Atrium Academy]