Visor Finance as a Liquidity Provider

GIVEN THE RECENT EXPLOIT ON VISOR FINANCE THE VOTE HAS BEEN SUSPENDED

See https://twitter.com/VisorFinance/status/1473306777131405314; thanks @NewOrder for bringing this to our attention

Liquidity Solution D – Visor Finance

Governance Proposal 1

Silo Liquidity Solution D

Authors: Chutoro

Edited By: BP (community manager of Visor Finance)

Related Discussion: Visor Finance Discord FAQ, Visor Finance Documentation

TL;DR
Visor Finance is a protocol that allows single or double-sided depositing of SILO or SILO and WETH into a Visor Hypervisor (or position manager contract) that manages SILO-WETH liquidity on Uniswap V3. It provides active management of liquidity to optimise for yields and slippage through automated range adjustments and auto-compounding in exchange for 10% of swap fees returned from the liquidity position. This will provide Silo with protocol-owned liquidity ( POL ) which is Silo DAO controlled, reducing our reliance on external liquidity providers.

ABSTRACT

High slippage is a consequence of low TVL and disincentivizes large players and other interested protocols from investing in or utilising a token. Currently, the largest market for SILO is Uniswapv3, with around $690K of liquidity in the 0.3% SILO-ETH pool. Currently 2/3 of that liquidity is being provided by a single liquidity provider, which can be risky if that liquidity is not rebalanced or if the liquidity provider decides to exit.

Having POL through direct liquidity provision via a Visor Finance managed vault will provide price and liquidity stability to SILO and allow retail and other investors to invest efficiently without worrying excessively about price impact.

Visor Finance allows the Silo Community Treasury to have either one-sided (SILO only) or double-sided (SILO and ETH) staking into their Hypervisor contract, which will be converted automatically into SILO-ETH LP Tokens and used to provide liquidity. Uniswap v3 introduced concentrated liquidity where LPs select target price ranges for their assets and will only provide liquidity for trades within those ranges. Whilst this provides for greater capital efficiency for LPs, prices beyond these ranges are unutilised and do not receive transaction fees.

Visor Finance offers active management of deposited funds and will automatically readjust price ranges, rebalance assets, and re-invest transaction fees. In contrast to passive Uniswap V3 liquidity provision, Visor is able to generate far higher yields by optimising capital efficiency, although VISR stakers will receive 10% of transaction fees. Note that this approach does not provide protection from impermanent loss which will be borne by the Silo treasury.

The Hypervisor contract is noncustodial in that only the treasury’s address will be whitelisted for depositing into and withdrawing from the Hypervisor. The deposits and withdrawals can be called at any time. The Hypervisor contract itself only has managerial functions such as readjusting liquidity ranges or re-investing earned fees back into the liquidity position.

In this approach, the treasury will deposit SILO, WETH, or a combination of the two and deposit it into the Hypervisor contract and receive SILO-ETH LP Tokens in return. Readjustment of price ranges, rebalancing of assets, and reinvestment of fees occur in the background with transaction costs borne by Visor rather than Silo. Silo will benefit from achieving higher transaction fees compared to passive liquidity provision.

MOTIVATION

This proposal aims to solve early liquidity issues for the SILO token. The liquidity will be protocol owned meaning that it does not rely on external LPs.

It will also result in greater returns from LP tokens compared to passive liquidity provision – these processes are automated by the Visor protocol. Gas fees for these changes are also borne by Visor.

SPECIFICATION & RATIONALE

Specification
To explain the process, we will use an example of $1M SILO and $1M WETH from treasury funds:

  1. Silo deposits $1M SILO and $1M WETH into the SILO-ETH Hypervisor contract
    • The individual dollar amounts of SILO and ETH do not matter since Visor will automatically rebalance to form 50:50 SILO-ETH
  2. The $1M SILO and $1M ETH will be used to provide liquidity on Uniswap V3
  3. In the background, the following processes will be automated:
    • Automatic readjustment of price ranges to optimise for yield and slippage
    • Rebalancing of assets – note that this will lock in impermanent losses
    • Reinvestment of 90% of transaction fees into the SILO-ETH 0.3% pool
    • The remaining 10% of transaction fees goes towards VISR holders

The Visor protocol employs various strategies to optimise yields that will be reinvested into our SILO-ETH LP holdings, with 10% given to VISR holders. To see how price impact can change based on the liquidity provided, see this sheet here: SILO-ETH Calculations - Google Sheets

Rationale

Technical: N/A

Social: Visor Finance has a large range of liquidity management partners in the Defi space such as Tokemak, FEI, Tracer DAO, Index Coop, and mStable which could provide future collaboration prospects

Financial: Provides $2M of liquidity in some combination of SILO and ETH. Generates higher return from transaction fees than passive liquidity provision and gas fees for management actions are borne by Visor.

Governance: Since the SILO is still owned by the community treasury, governance will not be affected.

BENEFITS

  1. Provides liquidity that is sustainable and does not rely on external parties
  2. Generates higher return from transaction fees than passive liquidity provision on Uniswap V3 due to the active management strategies developed by Gamma Strategies
  3. Gas fees for price range readjustment, rebalancing of assets, and reinvestment are borne by Visor
  4. Can be initiated very quickly
  5. Single and double-sided staking options are available

RISKS

  1. Relying on third party protocol exposes us to smart contract risk outside of our control
  2. Treasury funds deposited are exposed to impermanent loss which are realised due to rebalancing
  3. 10% of transaction fees are paid to VISR holders

VOTING
You can vote for this proposal here: Snapshot

Yes – You are in favour of partnering with Visor Finance and depositing treasury funds into a Visor Hypervisor for automated management in order to provide liquidity for SILO token

No – You are not in favour of this proposal[quote=“chutoro, post:1, topic:65, full:true”]
Liquidity Solution D – Visor Finance

Governance Proposal 1

Silo Liquidity Solution D

Authors: Chutoro

Edited By: BP (community manager of Visor Finance)

Related Discussion: Visor Finance Discord FAQ, Visor Finance Documentation

TL;DR
Visor Finance is a protocol that allows single or double-sided depositing of SILO or SILO and WETH into a Visor Hypervisor (or position manager contract) that manages SILO-WETH liquidity on Uniswap V3. It provides active management of liquidity to optimise for yields and slippage through automated range adjustments and auto-compounding in exchange for 10% of swap fees returned from the liquidity position. This will provide Silo with protocol-owned liquidity ( POL ) which is Silo DAO controlled, reducing our reliance on external liquidity providers.

ABSTRACT

High slippage is a consequence of low TVL and disincentivizes large players and other interested protocols from investing in or utilising a token. Currently, the largest market for SILO is Uniswapv3, with around $690K of liquidity in the 0.3% SILO-ETH pool. Currently 2/3 of that liquidity is being provided by a single liquidity provider, which can be risky if that liquidity is not rebalanced or if the liquidity provider decides to exit.

Having POL through direct liquidity provision via a Visor Finance managed vault will provide price and liquidity stability to SILO and allow retail and other investors to invest efficiently without worrying excessively about price impact.

Visor Finance allows the Silo Community Treasury to have either one-sided (SILO only) or double-sided (SILO and ETH) staking into their Hypervisor contract, which will be converted automatically into SILO-ETH LP Tokens and used to provide liquidity. Uniswap v3 introduced concentrated liquidity where LPs select target price ranges for their assets and will only provide liquidity for trades within those ranges. Whilst this provides for greater capital efficiency for LPs, prices beyond these ranges are unutilised and do not receive transaction fees.

Visor Finance offers active management of deposited funds and will automatically readjust price ranges, rebalance assets, and re-invest transaction fees. In contrast to passive Uniswap V3 liquidity provision, Visor is able to generate far higher yields by optimising capital efficiency, although VISR stakers will receive 10% of transaction fees. Note that this approach does not provide protection from impermanent loss which will be borne by the Silo treasury.

The Hypervisor contract is noncustodial in that only the treasury’s address will be whitelisted for depositing into and withdrawing from the Hypervisor. The deposits and withdrawals can be called at any time. The Hypervisor contract itself only has managerial functions such as readjusting liquidity ranges or re-investing earned fees back into the liquidity position.

In this approach, the treasury will deposit SILO, WETH, or a combination of the two and deposit it into the Hypervisor contract and receive SILO-ETH LP Tokens in return. Readjustment of price ranges, rebalancing of assets, and reinvestment of fees occur in the background with transaction costs borne by Visor rather than Silo. Silo will benefit from achieving higher transaction fees compared to passive liquidity provision.

MOTIVATION

This proposal aims to solve early liquidity issues for the SILO token. The liquidity will be protocol owned meaning that it does not rely on external LPs.

It will also result in greater returns from LP tokens compared to passive liquidity provision – these processes are automated by the Visor protocol. Gas fees for these changes are also borne by Visor.

SPECIFICATION & RATIONALE

Specification
To explain the process, we will use an example of $1M SILO and $1M WETH from treasury funds:

  1. Silo deposits $1M SILO and $1M WETH into the SILO-ETH Hypervisor contract
    • The individual dollar amounts of SILO and ETH do not matter since Visor will automatically rebalance to form 50:50 SILO-ETH
  2. The $1M SILO and $1M ETH will be used to provide liquidity on Uniswap V3
  3. In the background, the following processes will be automated:
    • Automatic readjustment of price ranges to optimise for yield and slippage
    • Rebalancing of assets – note that this will lock in impermanent losses
    • Reinvestment of 90% of transaction fees into the SILO-ETH 0.3% pool
    • The remaining 10% of transaction fees goes towards VISR holders

The Visor protocol employs various strategies to optimise yields that will be reinvested into our SILO-ETH LP holdings, with 10% given to VISR holders. To see how price impact can change based on the liquidity provided, see this sheet here: SILO-ETH Calculations - Google Sheets

Rationale

Technical: N/A

Social: Visor Finance has a large range of liquidity management partners in the Defi space such as Tokemak, FEI, Tracer DAO, Index Coop, and mStable which could provide future collaboration prospects

Financial: Provides $2M of liquidity in some combination of SILO and ETH. Generates higher return from transaction fees than passive liquidity provision and gas fees for management actions are borne by Visor.

Governance: Since the SILO is still owned by the community treasury, governance will not be affected.

BENEFITS

  1. Provides liquidity that is sustainable and does not rely on external parties
  2. Generates higher return from transaction fees than passive liquidity provision on Uniswap V3 due to the active management strategies developed by Gamma Strategies
  3. Gas fees for price range readjustment, rebalancing of assets, and reinvestment are borne by Visor
  4. Can be initiated very quickly
  5. Single and double-sided staking options are available

RISKS

  1. Relying on third party protocol exposes us to smart contract risk outside of our control
  2. Treasury funds deposited are exposed to impermanent loss which are realised due to rebalancing
  3. 10% of transaction fees are paid to VISR holders

VOTING
You can vote for this proposal here: Snapshot

Yes – You are in favour of partnering with Visor Finance and depositing treasury funds into a Visor Hypervisor for automated management in order to provide liquidity for SILO token

No – You are not in favour of this proposal

5 Likes

I am generally in favour for this proposal and think its a good idea to use POL to help with liquidity in the short term.

I also think by using auto rebalancing it will allows for deeper pools with less liquidity compared to provided the same value or liquidity on say Uni V2

I have some general comments below;

  1. Do visor offer incentive in the form of $visr to protocols / users?

  2. Does visor have an insurance cover?

  3. How long it is proposed that Silo uses its own liquidity? Will another vote be required to remove it or add to it if necessary?

  4. If $2m ($1m Eth & $1m Silo) was added, what as a % would this equate to Silo over all treasury? Less than 1%?

BTW good write up
Thanks

1 Like
  1. Not to my knowledge - they do mention ‘protocol incentives’ in their tokenomics which is dedicated to partnerships and TVL incentives but unsure if applies to us, see here

  2. Insurance cover can be provided via Nexus Mutual, see here

  3. I believe this would need to be decided with another governance proposal

  4. Silo in treasury = 450000000 * ~$0.3 = ~$135,000,000 SILO at current prices - note that these vest over 3 years so won’t be accessible all at once
    ETH in treasury = 6375 ETH * ~4000 = ~$25,500,000 ETH at current prices
    So would be roughly 1.2% of total treasury funds (200,0000/160,500,000)

Note that for Visor we could just provide the ETH component and they will rebalance to create a 50:50 SILO-ETH position.

2 Likes

Thanks for the answers

1 Like

I am in favor of this as a short term solution. Thx Chutoro

2 Likes

Hey thanks for the questions! I’m Brian from Visor Finance, and I would be happy to answer the first 3 questions.

1.) Visor currently doesn’t offer liquidity incentives for protocols and users, but we may consider liquidity incentives down the line if Silo were to co-incentivize.

2.) We are currently listed on Nexus Mutual for insurance coverage. See here: Nexus Mutual

3.) Our Hypervisor (position manager contract) is completely noncustodial. The Treasury can decide to remove the liquidity or add more at any given time.

2 Likes

Thank you @chutoro for initiating this proposal and all the other liquidity solution proposals! We really appreciate your thought and consideration!

I also wanted to point out a couple safety measures that we’ve implemented to ensure safety of our Hypervisor contracts. (1) we run all our rebalances through the Flashbots RPC to prevent any sort of frontrunning of our rebalance transactions (2) the Hypervisor will only whitelist the treasury’s address, so that only the treasury’s multi-sig can deposit to and withdraw from the vault, protecting it from external 3rd parties and price manipulation attacks.

If there is a desire to open the hypervisor up to the public at a later time, we enforce a dual-deposit proxy as well as a TWAP check against volatility, which will be protected from Uni v3 TWAP manipulation attacks and prevent any deposits from taking place when the spot price deviates from the TWAP price.

Lastly, I would also like to add some information about our synergies and comparisons with other Liquidity Solution proposals.

Liquidity Solution B - Olympus Pro

We currently partnered with OlympusDAO to bond Uni v3 positions. So it would be entirely possible to utilize both Olympus Pro and Visor and have the benefit of being on Uni v3.

Currently, Olympus Pro only allows the bonding of Uni v2/Sushi LP tokens because they only accept ERC20 LP tokens as being able to be bonded. Because a typical Uni v3 LP position is represented by an ERC721 LP token, it isn’t compatible with Olympus Pro.

However, we mint ERC-20 LP tokens that represent a Visor-managed Uni v3 position for our LPs. So users would deposit the base assets of SILO and ETH onto the Visor front end and receive minted ERC20 LP tokens. Those base assets would then be deployed and managed on Uni v3. The bonder would then bond the ERC20 LP tokens on the Olympus Pro frontend and receive discounted SILO.

This is much preferred over the current state of listing SILO-ETH on Uni v2 as this would allow a competing AMM pool to your current Uni v3 pool. If you were to bond the Uni v3 positions through Visor, the added liquidity would be combined with the current Uni v3 liquidity and make for a much more efficient solution.

An alternative to bonding, is that we can also place single-sided range orders of purely SILO tokens above the current price tick. This doesn’t have the effect of selling tokens at a discount, but rather at a premium to current market price while also lowering slippage for buy orders.

Liquidity Solution A - Tokemak

We are also partnering with Tokemak, and main issue that I see here is timing. They currently do not have smart contracts for directing liquidity just yet. This won’t be available until January. In our conversations with them, Uni v3 will NOT be a liquidity venue in their first cohort of liquidity venues; although we are in discussions with them about possibly adding Visor to the first cohort of liquidity venues.

Additionally, it requires a Reactor, which also requires winning a top 5 slot through a voting mechanism. We at Visor are very familiar with this process as we’ve had to fight tooth and nail to secure a top 5 slot in their second round of CoRE (Collateralization of Reactors Event). It involved a lot of bribing and coordination with our partners who had TOKE in their inventory to persuade them to vote for our Reactor. Although they are looking into a permissionless process for igniting new Reactors, it is still uncertain at this time when that would be live.

However, if and when SILO does secure a Reactor, we would be happy to vote for SILO with our TOKE and be able to direct SILO to the SILO-ETH pool on Uniswap v3.

Liquidity Solution G - G-UNI
In this proposal, the author alludes to a Bancor paper that states the majority of Uniswap v3 liquidity providers are unprofitable; however, I will say that their paper did not include many of the active managers such as Visor because we interact directly with the Uni v3 core contracts and bypass the NFT creation process. Only the Uni v3 NFTs were analyzed by the Bancor paper. Our results and backtesting have shown quite the opposite results.

Passive wide-fixed range approach or a heuristic approach can be useful especially when a liquidity pool is young and there isn’t much trading data to go off of. However, with at least 90 days of trading data on Uni v3, we can run our machine learning algorithms (currently using the AutoRegressive-GARCH model) developed by Gamma Strategies (our research organization) to dynamically adjust price ranges extremely wide during times of high volatility and narrow the ranges during times of low volatility to mitigate against impermanent loss while also generating more fees to offset that impermanent loss. Our backtesting results have shown that the AR-GARCH model outperforms both a passive, wide fixed range strategy as well as HODL-ing both assets outside of the LP position.

We have the ability to deploy initially a more heuristic strategy very similar to G-UNI’s strategy during the first 90 days. This involves setting +/- 80% or even wider bands around the current price tick and rebalancing as the price moves +/-15% in either direction. However, after the 90 days, we can easily transition to the AR-GARCH model which will dynamically adjust the ranges according to price volatility. Every week, we would update the model to include the latest pricing data to continually improve performarnce.

Happy to discuss any of the above in more detail! Thanks again for providing all of these liquidity solution proposal!

2 Likes

Thank you @chutoro for the great writeup. Thank you @Bjp333 for your insights. A few questions and then an opinion on next steps:
1- Do you recommend we open up hypervisor to the public? we would also like to see our community pull in the same direction.
2- Who is going to manage the position? How can we implement strategies to discourage selling and encourage buying?
3- What is the recommended liquidity amount and its distribution between SILO/ETH?

About taking this proposal - or any proposal - further
I highly recommend that the community create a snapshot vote for every proposal to gauge the community’s interest. 100K $SILO tokens are needed to create any proposal, and 10M tokens have to participate to pass any proposal.

Sure! See my responses below:

1- Do you recommend we open up hypervisor to the public? we would also like to see our community pull in the same direction.

Yes, we can open up the hypervisor to the public. We would need at least 60-90 days of trading history on Uniswap v3 to run our more complex strategy as well as establish a normalized APR. I suggest we wait to see how the liquidity situation ends up in 60-90 days. In terms of sequence, we can start with a private hypervisor with treasury funds until we acquire more trading history on Uniswap, and then list the hypervisor on our front-end for public depositing.

2- Who is going to manage the position? How can we implement strategies to discourage selling and encourage buying?

Gamma Strategies, our research organization will be automating the strategies in accordance with the active strategy framework that they have developed. The Autoregressive Strategy is the latest strategy that utilizes machine learning algorithms to automate the placement, widening, and narrowing of price bands to optimally limit impermanent loss and earn yields.

In terms of strategies to discourage selling and encourage buying, we can provide asymmetric liquidity where more of SILO is provided as opposed to ETH; thereby, creating more buyside liquidity as opposed to sellside liquidity. Therefore, price impact on buys will be low to encourage buying; and there could potentially be no liquidity for large selling of SILO. However, the tradeoffs to this approach is (1) community sentiment may be against limiting sellside liquidity (2) in case of a broad market sell off, it runs the risk that people will sell at any price and have large price impact to the downside.

3- What is the recommended liquidity amount and its distribution between SILO/ETH?

I would say a good amount is enough to limit price impact for a 10 ETH purchase down to 2%. That’s currently around $2M in liquidity. So based on current prices, that would be around 3.5M SILO and 260 ETH. I’ve created a google sheet simulation here: SILO-ETH Calculations - Google Sheets. Feel free to toggle with the parameters in green.

Another good benchmark metric is around 25% of the amount raised in the pre-sale. An even distribution of SILO/ETH would likely be the best scenario if the treasury does have ETH in its possession. We work with many protocols that may have a shortfall in ETH compared to their own governance tokens, and for those protocols we develop strategies to allow for more of their own protocol tokens. However, to the extent that you have ETH, it is recommended that a portion of it is provided as liquidity.

Happy to answer any further questions!

3 Likes

I would just like to raise some awareness to this as we currently have vote ongoing

1 Like

The vote has been withdrawn at this time and we are gathering more info from Visor and would appreciate any community insight as well. Thank you for sharing this

1 Like

Thanks for this - I will update the discussion to make that clear