Authors: @bjp333 (Visor Finance)
The purpose of this post is to gauge community sentiment around building protocol-owned liquidity on Uniswap v3.
The mechanics of doing so would be the following:
Supply 133,000 IDLE (approx. $500K) to a single-sided range order on the IDLE/ETH Uniswap v3 pool. Visor Finance will manage that range order and rebalance according to strategies developed by its research organization Gamma Strategies to optimize for slippage, yield, and availability of liquidity.
This will allow Idle Finance to:
- Increase the IDLE liquidity on the most capital efficient IDLE/ETH pool
- Build protocol-owned IDLE liquidity
- Generate swap fee income for the treasury
This approach is particularly useful for IDLE liquidity due to the simple fact that liquidity can be provided 100% in the form of IDLE.
This proposal aims to provide liquidity and generate yield on IDLE tokens provided by Idle Finance using Visor to initiate and manage the liquidity provisioning process. Concentrated liquidity provisioning on Uniswap v3 involves managing price ranges and manually re-investing earned fees. The advantages to using Visor Finance include active management of price ranges and reinvestment of earned fees. Price range adjustments and fee re-investments are done according to top-of-the-line strategies developed by Gamma Strategies, which is a research organization funded by Visor. Visor Finance takes 10% of the Uniswap swap fees, which get distributed to VISR stakers. 90% of the swap fees will be automatically re-invested into the LP position upon each rebalance. Visor Finance will cover all gas fees for rebalancing positions and re-investing earned fees.
The strategy to be employed is to place a single-sided range order from one tick above the current price tick. As the price of ETH/IDLE moves into the range, the position will gradually convert to ETH. When appropriate, the position will be rebalanced and managed according to the strategies developed by Gamma Strategies.
Base motivation for this strategy is to build IDLE DEX liquidity on a capital efficient DEX like Uniswap v3.
Why Uniswap v3?
- Capital Efficiency: By concentrating the liquidity around the current price tick, you have the ability to lower slippage on less liquidity than on Uni v2 or Sushi. For example, by concentrating liquidity around a +/-50% band, as opposed to providing liquidity at all prices, you can potentially achieve a 4x capital efficiency. What that means is with approximately 24% of the capital of Uni v2, you can achieve the same slippage on Uni v3.
- Higher Fees: By concentrating liquidity within a tighter band, the liquidity provider can potentially earn a higher fee multiple than on Uni v2 or Sushi. Additionally, the added TVL to the Uni v3 pool will absorb more volume as slippage is lowered for traders.
- Ability to use the Uniswap v3 Price Oracle: The performance of TWAP oracles has improved significantly. It is faster and cheaper to check the recent prices of assets. If requested, all the recent TWAPs calculated within the last nine days can be checked
- Ability to set single-sided range orders: Unlike Uni v2 and Sushi where a 50/50 ratio of assets are needed to provide liquidity, on Uni v3, you may set liquidity ranges consisting of 100% IDLE or 100% ETH. This proposal is suggesting a single-sided range order of 100% IDLE position above the current price tick. As buy orders push the current price into the range, IDLE is converted to ETH while also earning trading fees at the same time. The single sided range order of IDLE above the current price tick has the additional benefit of lowering buyside slippage for IDLE purchasers.
Why a Single-side Range Order?
- Advantages: The main benefits are that it takes all the advantages of the capital efficiency of Uniswap v3 as mentioned earlier, it does not involve market selling tokens at a discount to obtain the other side of the pair in ETH, and it significantly lowers buyside slippage for purchasers.
- Disadvantages: There can potentially be a delay if the range order is not “bought into” especially if the price of IDLE were to decline relative to ETH or if ETH were to rise in relation to IDLE. However, in the worst case scenario, Idle Finance would remain at status quo with a 100% IDLE position.
Why protocol-owned liquidity?
- Control over your own liquidity: Idle Finance need not rely on external liquidity providers who can be mercenary and have interests at odds with the protocol. Additionally, Idle Finance can ensure that liquidity is centered around the current price while also being able to control slippage for buy orders by placing more IDLE in a single-sided range order above the current price tick.
- Fee revenue: The fee revenues from providing liquidity on Uniswap v3 can be used to scale the total liquidity with the growth of the platform. Alternatively, the fees can be used as an additional source of revenue to fund the operations of Idle Finance.
What coverage options are there?
- Visor Finance is listed on Nexus Mutual for protocol coverage and currently there is enough coverage for 3.2K ETH or 15M DAI
- Events covered include: contract bugs, economic attacks (including oracle failures), and governance attacks
Due Diligence items:
- Visor Finance has been audited by Certik.
- A bug bounty is also live on Immunefi
- For a list of our current partners for Active Liquidity Management, please see here: docs.visor.finance/learn/partners/liquidity
- Idle Finance will supply 133,000 IDLE to the Visor position manager contract called the Hypervisor, which will mint fungible ERC-20 LP tokens to a whitelisted address provided by Idle Finance.
- Visor Finance and Gamma Strategies will utilize their strategies to manage the price ranges with the express goal of lowering slippage and generating yield