Liquidity Solution G - G-UNI

Proposal Discussion
1

Governance Proposal 1

Silo Liquidity Solution G

Author: DeFi Dave

Submission Date: 12/18/21

Proposal

Direct SILO Treasury to G-UNI to power SILO/ETH liquidity in Uniswap v3.

Abstract

According to an academic paper published by the Bancor team, the majority of Uniswap v3 liquidity providers are unprofitable and show that certain active management strategies do not outperform passive strategies when readjusting liquidity. This is why G-UNI has championed a passive wide-fixed range approach when it comes to liquidity so protocols can take advantage of the capital efficiency of concentrated liquidity while minimizing their exposure to impermanent loss.

For those unfamiliar, G-UNI is an easy-to-use, unopinionated framework built by the Gelato team for managing Uniswap v3 LP positions. Through G-UNI, protocols and their users can provide liquidity that is fungible and automatically reinvests back into the pool for compounding results. By creating a G-UNI pool on Sorbet Finance, not only can the SILO Treasury provide the initial liquidity, but members of the SILO community can also participate in the pool as well. G-UNI has been trusted by MakerDAO and Aave as collateral, soon Olympus DAO for Olympus Pro (with the GEL/ETH pair), and Fei, Float, Instadapp, and others for their liquidity mining programs. The APR to measure performance for G-UNI is easily available on the Sorbet Finance UI.

Rationale

The philosophy behind the G-UNI fixed range strategy is that the community should be the liquidity provider of last resort. Tight ranges and experimental active rebalancing strategies can be done by individual liquidity providers but if the price of SILO were to moon or dump unexpectedly, having only those would cause a given pair to have worse slippage than Uniswap v2. By providing a wide range, a community can assure there is always ample liquidity for people to trade.Taking it one step further, community treasuries can own mulitple G-UNI pools and stack them in a ‘brick-by-brick’ manner based on the average price overtime.

Specification

To explain the process of deploying G-UNI with an effective strategy, we will use an example of $500k SILO and $500k ETH from treasury funds:

  1. SILO creates G-UNI pool with a range targeting the value of $0.32 which would mean current ETH prices the lower tick would be 0.00002 and the upper tick would be 0.00033.
  • The reason why this range was chosen is because it is 4x above and 4x below $0.32 which is the
    widest range a pair can have while still reaping the benefits of concentrated liquidity. For 4x above and 4x below, concentrated liquidity is 2x more capital efficient than a ‘zero to infinity’ range.

  1. SILO deposits liquidity in the G-UNI pair. Users can deposit their SILO or ETH in the liquidity pair as well

  2. After a period of time, the SILO community can decide to create a new G-UNI pool for SILO/ETH based on previous price action (ex. a new G-UNI pool can target 3x above and 3x below $0.80). By stacking G-UNI pools on top of each other, it makes the SILO/ETH pair more robust long-term. These new pool can further be incentivized by partnering with Tokemak or Olympus Pro.

Pros and Cons

Several advantages of G-UNI include that fees are 2.5% and are only taken when users claim their initial liquidity they provided back. Users who want to provide liquidity without having to deal with Uniswap v3 management can just ‘set-and-forget’ their position as they would in Uniswap v2. Because G-UNI tokens are composable, they can be used as a collateral in lending protocols such as SILO itself. The risk of using G-UNI is the same risk that comes with interacting with all of DeFi, which is smart contract exploit risk.

Motivation

This proposal aims to solve early liquidity issues for the SILO token. The initial liquidity will be protocol owned meaning that it does not rely on external LPs. Community members will have the option of providing liquidity to the G-UNI pool if they desire to.

The Community-owned G-UNI pool will provide the liquidity necessary for long-term liquidity programs such as Olympus Pro or Tokemak in the future.

Further Resources:

Voting

Yes - Direct Treasury Funds SILO/ETH G-UNI pool

No - Do nothing

8 Likes
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Hey Dave, I like the proposal. Going to do some more reading on G-UNI, stacking different ranges of liquidity seems pretty interesting and seems like it could have a positive impact on price if liquidity was being consistently raised towards the upper bound of the range. Correct me if i’m wrong, that was just something that came to mind when reading this first time through.

5 Likes
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That’s exactly the idea! Over time, liquidity ranges can be ‘sprinkled’ on top of each other. So if the initial liquidity pool reaches the upper tick, then we could just deploy another G-UNI pool or in theory partner with Olympus Pro to issue bonds for G-UNI LP tokens in that new more accurate range.

5 Likes
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Great proposal! If it works well, I wonder if can do more than 500k.

3 Likes
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Great idea! Especially when most active strategies on Uni V3 donot outperform the simple holdl ones…

3 Likes
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Of course! I am open to doing $1 million on each side. Whatever the community prefers or feels comfortable with.

4 Likes
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Any community member can create a snapshot vote for any proposal to gauge the community’s interest.

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Hey all I just want to expand upon what my colleague DeFiDave has posted in here. The vision for G-UNI is a fully permission less and flexible framework for aggregating and managing Uniswap V3 liquidity. The liquidity is yours to fully control, gelato simply makes it much simpler to aggregate, track, adjust and automate your V3 liquidity. And of course all the benefits of having an ERC20 LP token and Uniswap V2 like LP experience.

Today when you deploy a G-UNI pool, a manager role is specified (could be a dev multisig or could be DAO governance) and this manager is free to manage the V3 liquidity however they please (can arbitrarily shift the range the liquidity is in). So already you could have highly active and customized strategies with G-UNI if this is desired. In practice however, managing liquidity manually is a time consuming problem and difficult to “get right” ( when to rebalance and why ). While static ranges for LPing on uniswap V3 are not the be all and end all (smart management of liquidity will eventually beat out simple wide range strategies, and it’s where G-UNI is headed), in the currently uncertain landscape of concentrated liquidity, wide static range strategies have performed surprisingly well. That’s why we recommend starting to bootstrap liquidity with a simple and conservative fixed range strategy in the absence of more market data.

G-UNI was designed first and foremost to make UniV3 liquidity a simple tokenized money lego that fits easily into existing DeFi paradigms. That’s why G-UNI has so quickly been onboarded to makerDAO, Aave and used by a number of projects for LM. Our focus has been less on building out active management strategies and more on making G-UNI pools seamless to integrate and compose with other protocols in arbitrary ways. What we lack in complex liquidity optimizations (for now), we gain in composability.

There are certainly limitations to a fixed range LP strategy, and difficulty in manual/in-house management of a G-UNI position’s range (rebalances). In the near future it will be much easier to use gelato to automate the manager rebalances of a G-UNI pool and the strategy employed could be as customized as desired (though we will have some off the shelf strategy templates to configure an automated manager in minutes).

Lastly I’d mention that it is entirely possible and even desirable to use G-UNI in it’s current, static form in conjunction with other V3 LP management schemes (uniswap-v3-staker, visor, etc). A conservative range G-UNI Pool can act as a liquidity base and can be rebalanced manually / infrequently via slower governance processes as prices drift long term. At the same time more concentrated and dynamic strategies could be employed on top of this liquidity base. In my mind this is probably the best way to bootstrap new Uniswap V3 markets for project tokens (we’ve arrived naturally at something like this with a couple of other projects)

2 Likes
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I would just like to raise some awareness to this Post Mortem issues by $Gel

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Thanks for bringing this up. Here are a few important points from this:

  1. The issue only affected Sorbet Finance. It did not affect G-UNI itself our other interfaces such as Zerion or Oasis, all of those are safe.

  2. Gelato fixed the vulnerability and successfully whitehack saved $26 million in funds. We were able to save another $1 million after the vulnerability was discovered.

  3. Gelato went above and beyond to notify vulnerable users to revoke approvals in their address in a campaign not seen before in DeFi. This includes setting an alert under their address on Etherscan, sending a transaction notifying the user of the vulnerability, identifying and reaching out to users on social channels via their ENS name or NFTs, send users an NFT alerting them to revoke approvals. Hundreds of users were able to revoke approvals and only 66 addresses remain.

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For those curious on what the G-UNI experience is like, I created a SILO/USDC pool for people to try out and observe here

1 Like