Uniswap's Hayden Adams: Q&A on Weathering the Regulatory Storm, What’s Next for DeFi

After the recent release of a proposal for a new "v4" version of the decentralized exchange Uniswap, CoinDesk's Sam Kessler chats with Uniswap Labs CEO Hayden Adams about the case that DeFi is “here to stay” and his position that the U.S. “lags behind” on crypto regulation.

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Uniswap Labs CEO Hayden Adams launched Uniswap in 2018 just as Ethereum and the idea of blockchain-based computer code, called “smart contracts,” were first taking hold.

The platform mainstreamed the automated market maker (AMM) – a tool that allows people to swap between currencies without the use of middlemen – and quickly grew into a financial behemoth. Still the largest decentralized exchange (DEX) in a growing field of competitors, Uniswap has processed over $1 trillion worth of transactions across a variety of blockchains.

In an interview with CoinDesk, Adams argues that Uniswap v4 – an upgraded version of the platform that Uniswap Labs opened for public review earlier this month – will make the platform even less centralized and more powerful than ever. Adams also addresses concerns with the distribution of power in Uniswap’s governance system, and he gives his take on the U.S. regulatory crackdown on crypto.

This interview, which was edited, was conducted on June 12.

Can you tell me a little bit about what the plan is with Uniswap v4, the vision, and how it differs from v3 and other previous iterations of the platform?

Historically, the way that new protocol versions have come out has been almost more like products, in the sense that they've been basically announced when they're almost done. And that was sort of, I think, something that made sense at the time. But with where the Uniswap protocol is today, building in public and inviting the community to build alongside us and contribute to this decentralized protocol is a really important thing.

When we first rolled out Uniswap v3, it was a really powerful protocol. And it sort of ultimately proved itself, and today it has about 90% market share on Ethereum specifically for on-chain trading and AMMs. But, you know, one very valid piece of criticism that it got a little bit was like, "Oh, this thing came out. We're kind of surprised. I didn't have time to build my integration, and so I had to wait and build it after it launched.” And so I think part of it is it allows, basically, shifting towards a model much closer to Ethereum, where on Ethereum, everyone knows about a hard fork many months, or half a year, before it happens. All the different projects building on top of Ethereum have many months to prepare and start building on top of it, as well as give feedback on the upgrade itself. There are open processes for how people give feedback on the Ethereum roadmap. And so similarly, people will be able to give feedback and even contribute code to the next version of the [Uniswap] protocol.

It sounds to me like the biggest thing with Uniswap v4 is these "hooks," which expand upon the functionality pools. Can you kind of explain this whole hook idea and what it's going to unlock for users?

Really what you find in the process of building things like Uniswap is that you make a lot of trade-offs. Hooks are essentially ways of customizing and modifying how liquidity pools work within Uniswap. These are done by the people who create pools, anyone can create a pool and then choose how to customize it. What we wanted to do with hooks is let people basically make these trade-offs themselves and really choose how their pool works.

Hooks are really about exposing a lot more flexibility and customization. I'd say that that's one part of it. I think that another aspect of hooks is that it's, in part, just about turning Uniswap into a little bit more of a platform that’s more expressive.

Can you talk to me a little bit about Uniswap’s approach to decentralization – both in terms of how the platform is built and in terms of how the platform is run in a permissionless manner where anyone can create a pools? How does your approach differ from other decentralized platforms?

Decentralization has been part of our philosophy since the very, very beginning and still is today. Just like all previous versions of the protocol, Uniswap v4, at its core, is a smart contract that runs on Ethereum. It's an immutable smart contract. It can't be upgraded, it's permissionless, it's open, it does what it says it does. And so that's a core part of it.

I think that where Uniswap v4 may even take it to like the next level is that it just gives people more choices and flexibility and allows for a very powerful developer ecosystem on top of it. v3 already had this in certain ways, but with this hooks design, not only are we not controlling the system, we're also not even telling you how the pools should work.

Does the whole decentralized governance thing fall apart a little bit when there are individual entities like a16z (the crypto-friendly venture capital firm Andreessen Horowitz) that control so many tokens? Uniswap is by no means exceptional in this respect, but is there any concern around VCs and other big entities controlling these initial distributions or accruing tokens over time?

I think there's many different forms of decentralization. But first, I think that the most important aspect of decentralization within Uniswap is that no one controls the protocol. No governance vote, for example, can withdraw the funds of liquidity pools. There's different types of decentralization and different degrees of it. I'd say that the best form of decentralization is not needing any governance. True automation. The most pure form of decentralization is to automate and make immutable what can be automated and made immutable.

The second form of decentralization is economic, if something can naturally work because of economic incentives that are created. You can imagine liquidity providers and swappers – they engage in a two-sided marketplace, and there's no need to govern what's happening. It's not about governance. There's a natural economic incentive to participate in the system. And that's also a really important form of decentralization: anyone can participate, and then you have this open marketplace.

Let’s turn to the Coinbase and Binance lawsuits from the SEC. I want to get your take on what it means for a decentralized platform, like Uniswap, that the SEC is going after these centralized platforms.

I don't really know too much about those lawsuits. Generally, I think that DeFi and decentralized platforms are quite different from centralized ones. There are different properties and so I don't have a ton to add.

Personally, I do think that over time I always expect to see more decentralized platforms over centralized ones. I think there are, like, fundamental benefits of self-custody, transparency that they can offer, provable solvency – all these things.

Binance and Coinbase, they're thinking about regulation every single day. They've got a bunch of lobbyists on their payrolls who are in Washington, D.C. – and, I'm sure, in many other countries – lobbying on their behalf. They have legal apparatus within their companies, checks that engineers have to do with their PMs, and so on, in order to make sure that they're compliant. In your day-to-day, how does regulation factor into how you make decisions at Uniswap Labs?

Yeah, I mean, obviously we have lawyers and we make sure that everything that we do is legal and all of that. I would say that generally speaking, the way I think about the space, though, is DeFi is a new industry, and I work in it because I believe that it offers fundamentally better outcomes for users. I wouldn't work in DeFi if I thought that it was not a good thing for the world, right? I see DeFi as like the internet in its early days, where, yeah, there's a lot to figure out – there's a lot of rules that had to get crafted to regulate the internet. There was a period of time when it was an open question, like, should like e-commerce be legal? Buying things on the internet? That sounds scary. Or, like, should things like YouTube be legal? "Oh, how should we deal with trademark infringement?" And the DMCA [Digital Millennium Copyright Act] got created.

I think that generally speaking, this industry is, in my opinion, here to stay. And this technology is here to stay. The U.S. is probably lagging behind – almost definitely lagging behind – other countries. We've seen in Europe for example, in the UK and France, people have started to engage more directly with DeFi and are thinking about how to create rules for it, and I think being quite thoughtful about it from what I've seen. The U.S. seems pretty far behind on that front, as far as I can tell.

Something I'll note as well is that I think sometimes in crypto people can talk very much about what's happening in the U.S., but something like more than 70% of Uniswap users are not in the U.S. At this point, my hope is that more progress can be made in other countries, and the U.S. can learn from that as opposed to the U.S. leading.

Crypto is in a down period. Volumes across decentralized platforms, relative to a year ago, two years ago, are continuing to decline. Are you nervous about the future of decentralized finance in light of the regulatory crackdown and in light of the retail fleeing from these platforms? Or do you see this as a more normal cycle where we're just in a bear market, and there will inevitably be another bull market?

My own measures of progress have never been prices. My measures of progress have always been progress, and to me, progress is the state of the industry, people using. My rates of progress are about the fundamental value that's been created and the kind of technical innovation that has happened. And to me, that number has continued to go up over time.

While there's a lot of noise in the industry sometimes, and there's a lot of hype and distraction – there have been a lot of very high-profile scams in the past year – I've said that a lot of the things that broke were things that were kind of broken to begin with. They were highly-centralized things that were heavily marketed. True DeFi has really weathered the storm quite well, in my opinion. In terms of, like, MakerDAO, Compound, Uniswap – all of these protocols have actually handled this market cycle extremely well in terms of operating flawlessly.

And so that's a really strong indication – the things that broke were the things that looked most similar to the things that we're trying to replace. It was the highly-centralized projects, the off-chain, hedge fund-looking things that had loans that were not secured on-chain, you know, stuff like that, that broke. It wasn't the Uniswaps.

Personally, for me, I almost enjoy these times more, in a sense, because we get to focus on building and progress as opposed to hype and marketing, which is sort of what dominates a bull market.

Edited by Bradley Keoun.


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Sam Kessler

Sam is CoinDesk's deputy managing editor for tech and protocols. He reports on decentralized technology, infrastructure and governance. He owns ETH and BTC.

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