Claus Memecoin Upgrades to Uniswap v4 Hook for Dynamic Fee Allocation

Original author: Thejaswini M A

Chopper, Foresight News

In early October, a Memecoin project on Ethereum named Claus replaced part of its "brain." Claus splits transaction fees to fund buybacks, token burns, liquidity injections, and rewards for NFT holders.

The financial operations of this token are closely tied to weather conditions. Claus allocates transaction fees to purposes such as buybacks, burns, liquidity, and rewarding NFT holders. At one point, weather reports from London Heathrow Airport were used to determine how much funding went toward token burns versus returning to the liquidity pool to support trading. Rainy days favored token burns, while sunny days favored liquidity. If weather data was interrupted, funds were distributed equally.

The weather experiment is just one of several features in its trading pool. On October 6, the project team announced the removal of the arbitrage function while retaining the token contract address, trading pool, and all other functionalities. This allows holders to keep their existing tokens without needing to swap them for a new version. This capability is made possible by Uniswap v4’s upgradeable Hook system.

A Hook is a smart contract that can append additional instructions to a transaction flow. Other developers can use Hooks to adjust fees or activate idle liquidity. Developers can build diverse markets within existing exchanges without having to deploy new decentralized exchanges from scratch or convince all users to migrate.

Therefore, by October 8, if you queried Uniswap’s public Hook registration contract—the contract responsible for Claus’s entire fee logic—it had already switched from the old FeeWeatherHook to the entirely new code, FeePrivacyHook.

The project team describes this token as a smart agent itself: the token is its body, and the upgradable Uniswap v4 Hook serves as its brain. In the past, once a token’s rules were written into the contract, all exchanges were permanently bound to those fixed rules.

Hook separates these rules from the token contract and moves them to the trading market layer. Some Hooks even support rewriting trading rules afterward.

Around this technology, an entirely new industry is taking shape. It has spawned a wide range of innovative products, but also introduced significant new risks of asset loss.

Suppose one liquidity pool quotes ETH at $2,000, while another quotes it at $2,020. An arbitrage bot can buy ETH in the lower-priced pool and sell it in the higher-priced pool; after deducting fees and gas costs, the remaining profit is the arbitrage gain. Such arbitrage trades eliminate the price difference between the two pools. Typically, arbitrage bots capture the entire profit, while the liquidity pools earn only transaction fees.

The standard liquidity pool already has built-in rules for calculating trades and collecting fees. However, developers may wish to allocate a portion of arbitrage profits to users. Hooks are independent smart contracts that execute additional instructions at specific points during a trade. Some hooks can leverage this logic to detect price discrepancies after an exchange and execute arbitrage within the same transaction to eliminate the spread. The captured arbitrage profits can then be distributed among liquidity providers, traders, and the project deploying the hook.

In Uniswap v4, a shared contract called PoolManager centrally handles swaps and tracks balances for all pools. All v4 pools on the same chain share this PoolManager, but each pool maintains its own independent liquidity and parameter settings.

When you exchange ETH for CLAUS tokens, PoolManager invokes the ETH/CLAUS pool to process the transaction. If the pool has a Hook, the system also determines when to trigger the Hook execution.

Hooks can include the beforeSwap function, which runs instructions before the trade is executed—for example, calculating the transaction fee or verifying whether the trader has permission to make the trade. They can also include the afterSwap function, which executes instructions after the trade is completed—such as triggering a token buyback or updating recorded prices. Hooks can use either function individually, enable both simultaneously, or be combined with other functions related to adding or removing liquidity.

These instructions do not need to be changed frequently. A set of hooks can follow the same rules for years, such as consistently allocating a portion of fees as rewards.

The transaction pool can also be mounted without a Hook, in which case the PoolManager processes transactions according to the v4 standard logic. Hooks are designed for developers who want to customize transaction logic.

The challenge lies in developers wanting to replace the instruction logic later. When a pool is created, the Hook contract address is written into the configuration, and PoolManager relies on this address to call the corresponding contract. In Uniswap v4’s design, this address is a permanent part of the pool’s identity. Deploying a new Hook contract with a completely new address will not automatically bind to existing old pools.

Without an upgrade mechanism, using a new Hook requires creating a new liquidity pool and migrating the liquidity over.

Claus avoids this issue by using an upgradeable architecture. Its hook is divided into two parts: one contract retains a permanent address for pools to call, and the other contract holds the actual executable code. The first contract is called the proxy.

When Claus's authorized administrator wants to modify the rules, they simply deploy a new version of the instruction code and notify the proxy contract to switch to the new version. The transaction pool still calls the same Hook address, but the code logic executed by the Hook has been updated.

This is how the existing transaction pool can gain new features without requiring users to migrate their tokens. The party with upgrade authority holds control over the pool’s behavior, which is where users must assess their trust risks.

Before Hook was created, developers could already implement custom logic for tokens, but it was difficult to achieve compatibility with the DeFi ecosystem.

The first approach is to encode the rule directly into the token contract. On Ethereum, this gave rise to "tax tokens"—ERC-20 tokens that automatically deduct a fee during transfers. If you transfer 100 tokens for exchange, the token contract deducts 2 tokens, leaving only 98 tokens to enter the trading pool. However, the exchange contract expects to receive the full 100 tokens, causing the transaction to fail.

Uniswap v3 documentation notes that such tokens are incompatible with standard routing contracts. Developers can only use workaround solutions such as wrapped contracts or custom routing. Although the tax mechanism can raise reward funds, it increases the complexity of trading the token, and many exchanges cannot handle this automatic fee deduction.

Developers can also build contracts around the pool independently or modify the exchange code to deploy a standalone DEX version. However, the effort required to set up the entire infrastructure far exceeds the functionality itself.

Hook provides developers with a dedicated vehicle for implementing trading rules. It enables the following capabilities:

• Funds are only withdrawn for buybacks or reward distributions during trades; no taxes are applied to regular wallet transfers;
• Automatically adjust trading fees, such as adjusting rates when market volatility increases;
• Distribute captured arbitrage profits to traders and liquidity providers;
• Restrict trading permissions; the pool allows transactions only from whitelisted wallets.
• Integrate liquidity with lending protocols to earn interest on idle liquidity when it is not being traded.
• Implement the above features within the existing exchange, without needing to deploy and maintain a separate DEX.

Hook has also given rise to a business model where the core product is custom pool trading logic.

On October 14, Uniswap deployed VolatilePair, a hook that distinguishes between buy and sell fees, initially launching on the Ethereum ETH/USDC trading pair. This hook charges different fees to buyers and sellers based on recent price volatility. According to the official announcement, the trading volume of its previously launched StablePair hook for stablecoin pairs reached $3.1 billion in its first four weeks.

Other teams are also dynamically adjusting fees based on the type of traded asset.

The DEX project Fables on Robinhood Chain adopts the above approach, supporting trading of tokenized assets such as stocks, and uses Hook to adjust fees based on signals like time and volatility. When the underlying securities market is closed, stock tokens can still be traded, but reliable price data sources and hedging opportunities become limited.

The logic behind dynamic fees is that providing liquidity during these periods carries a completely different risk profile compared to providing liquidity during periods of high trading activity.

Fables will adjust fees according to U.S. stock market trading hours. Some tokenized funds are available only to qualified investors.

In July, Uniswap Labs launched Uniswap v4 permissioned pools, with Superstate, Securitize, and Dowgo as the first partners. This solution uses Hooks to verify whether a wallet is authorized to trade or provide liquidity.

Its DualPool Hook lends out market makers' idle tokens and reclaims them when needed for swaps. Spark has already migrated $150 million in liquidity to v4 and plans to integrate this Hook. The Auction Hook enables the gradual sale of new tokens over a period, ultimately forming a liquidity pool based on the final settlement price paid by buyers. Aztec used this Hook to raise approximately $59 million from over 17,000 bidders.

On the data level, v4 has generated $39.7 billion in trading volume over the past 30 days, accounting for approximately half of Uniswap’s total trading volume and contributing 64% of Uniswap’s fees. A significant portion of this volume comes from Robinhood Chain. When Bitquery investigated the chain’s pools in early September, only about one-third of v4 pools had hooks attached, yet these pools accounted for 74.5% of all trading.

If Hook becomes the new vehicle for storing token trading rules, the opportunity lies in selling plug-and-play rule toolkits—programmable.market is the prime example. It positions itself as the open launch infrastructure for Uniswap v4, essentially a toolkit that enables one-click deployment of tokens with preconfigured trading rules on Ethereum and Robinhood Chain. Choosing the Classic version allows you to deploy tokens with custom buy and sell fees, paired with a permanently locked ETH trading pool.

In my view, this is essentially a tax token, except that the fee logic is now embedded within the liquidity pool, allowing the routing contract to identify it in advance. The Custom version, deployed via API, is designed for project teams seeking to customize their hook configurations. On Robinhood Chain, the default setting for newly created custom projects extracts a 0.2% fee and transfers it to a designated address. The documentation also openly acknowledges that the contract has not yet undergone external audit or public security competition.

Claus was launched via programmable.market. Buybacks, NFT rewards, and weather-driven fund allocations can all be integrated as part of the token's transaction framework. Claus can alter the purpose of transaction fees without issuing a new token. However, holders must continuously monitor changes—rules accepted at the time of purchase may be modified later.

On Robinhood Chain, there is also a similar tool platform called Hookrfun, which offers 22 "Hook components" for creators to select, including sniper protection and automatic burn. Among these, the What The Hook component captures price differentials between pools before arbitrage bots can act, distributing profits to traders and liquidity providers. Hookr’s token issuance toolkit includes this service built-in.

Third-party pools directly integrate with What The Hook’s default profit distribution rules: 45% to liquidity providers, 5% to traders, 40% to the treasury, and 10% to referrers—these are the allocation ratios for captured arbitrage profits. What The Hook is the only tool that publicly discloses this data, and the majority of distributed arbitrage funds remain in its own treasury.

The Uniswap protocol is not deployed on Solana; Solana’s trading is distributed across multiple DEXs such as Raydium, Orca, and Meteora. Since there is no unified PoolManager to attach hooks, Solana embeds hooks directly into the tokens themselves.

Solana's new token standard, Token-2022, supports creators in attaching transfer hooks. Every time a token is transferred—including buys, sells, and standard wallet transfers—the program executes to validate rules, such as verifying whether the recipient address qualifies to hold the token, and blocks the transfer if conditions are not met.

Hooked is Solana’s token launch platform, where every token issued comes with a built-in transfer hook. Creators can choose from 39 pre-built rules—such as the “hot potato” mechanism or requiring buyers to wait 15 minutes before selling—or let AI generate custom rules. Each rule includes clear, easy-to-understand descriptions, and some tokens allow project teams or holders to vote on future rule revisions. A 1% transaction fee is charged on every trade, with most of the fees used to repurchase and burn Hooked’s native token.

However, there is a restriction: Raydium will not create trading pools for tokens with transfer hooks unless approved by an administrator. Meteora can support such tokens on its value curve; however, once the token is upgraded to the main trading pool, the transfer hook logic is removed. Hooked’s workaround is to keep the token permanently on the curve, ensuring the rules remain in effect.

In Uniswap v4, additional rules are attached to liquidity pools. The same token can be traded in pools with Hooks enabled and in pools without Hooks. Users can choose their preferred pool manually, or the router can select one automatically.

Solana’s transfer hook logic differs: rules are bound to the tokens themselves, and any transfer of those tokens triggers the rules, including transfers between wallets. Both solutions come with complementary upstream and downstream ecosystems: routers determine which pool a transaction flows to, and exchanges determine which token features to support.

Developers have more market design tools at their disposal, but the choices they make will determine whether the project can attract users and liquidity.

I believe upgradeable features are more important than the Hook itself. A fixed Hook is merely an improved version of a tax token. It turns the token’s trading market into something akin to an app that can receive version updates.

Previously, modifying token logic required a token migration: projects had to deploy a new contract, require all holders to swap their tokens, request exchanges to relist the new token, and liquidity would be split between the old and new versions. In September 2024, Polygon migrated from MATIC to POL, requiring all holders to perform a 1:1 swap, with exchanges also assisting users in completing the transition.

Such migrations always leave some holders behind. Upgradable hooks allow projects to modify token trading behavior without requiring large-scale user migrations, significantly reducing the cost of experimentation for projects.

The most valuable use case for Hook may not be memecoins. I’m thinking of tokenized securities—where the trading rules for real-world assets are constantly evolving. For example, a fund might open new quotas to investors from other countries, requiring updates to investor eligibility verification. An upgradeable Hook can make these adjustments without disrupting existing trading pools. It doesn’t alter investors’ legal rights or remove restrictions embedded in the token contract, but it enables the trading platform to stay aligned with changing regulations. For markets designed to operate long-term, this adaptability is far more practical than locking in all rules at launch.

The fund may need to update its trading rules, while the Memecoin community may prefer that rules remain untouched by project team intervention. Both demands are reasonable. When facing an upgradeable Hook, I will carefully examine what the controller is able to modify. Simply updating trading eligibility is one thing; but being able to alter fees or redirect reward funds grants significantly greater control over pool users.

I want time to review any updates before they affect my funds, and the opportunity to withdraw if I disagree. Projects can build in notification waiting periods within the contract to limit the scope of changes developers can make. Completely relinquishing upgrade rights eliminates future modifications but also removes the ability to patch vulnerabilities later. Before depositing funds, I will carefully review these terms, along with fees and expected returns.

Claus refers to Hook as the brain of the token. In the future, project teams could enable AI agents to automatically update Hook based on market conditions—for example, adjusting fees within parameters set by the team and explaining the rationale behind each change. This automated adjustment is appealing, but I would verify: who sets the boundaries for this AI, and who has the authority to shut it down if it makes incorrect decisions?

Money has always had a mind of its own. During the Great Depression in 1932, the town of Wörgl in Austria issued a local currency. To keep the banknotes valid, holders were required each month to purchase a stamp worth 1% of the note’s face value. Who would want to hold onto money that continuously lost value? This design incentivized spending rather than hoarding.

The local government used this system to fund public works and allowed residents to pay taxes, including back taxes, using the currency. In 1933, the Austrian central bank intervened, bringing the experiment to an end.

In that era, monetary rules were set by governments. Governments still establish rules today that shape how people use money. Cryptography, however, enables developers to create these rules for independent tokens and markets, allowing buyers to freely choose solutions that best fit their needs.

Choosing a token is essentially about determining whether this set of rules suits you.