BIP #8 - Build Protocol Owned Liquidity On Uniswap v3

This is a formal proposal generated from discussions from this forum post here: https://forum.bprotocol.org/t/build-protocol-owned-liquidity-on-uniswap-v3/

Summary

Supply 100,000 BPRO (approx. $700K) to a single-sided range order on the BPRO/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 B Protocol to:

  • Increase the BPRO liquidity on the most capital efficient BPRO/ETH pool
  • Build protocol-owned BPRO liquidity
  • Generate swap fee income for the treasury

This approach is particularly useful for BPRO liquidity due to the simple fact that liquidity can be provided 100% in the form of BPRO.

Abstract

This proposal aims to provide liquidity and generate yield on BPRO tokens provided by B Protocol using Visor Finance 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 (https://gammastrategies.org), 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/BPRO 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.

See and toggle calculations here to see how slippage and token composition can change in a variety of scenarios: BPRO Calculations - Google Sheets

Motivation

Base motivation for this strategy is to build BPRO 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% BPRO or 100% ETH. This proposal is suggesting a single-sided range order of 100% BPRO position above the current price tick. As buy orders push the current price into the range, BPRO is converted to ETH while also earning trading fees at the same time. The single sided range order of BPRO above the current price tick has the additional benefit of lowering buyside slippage for BPRO 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 BPRO were to decline relative to ETH or if ETH were to rise in relation to BPRO. However, in the worst case scenario, B Protocol would remain at status quo with a 100% BPRO position.

Why protocol-owned liquidity?

  • Control over your own liquidity: B Protocol need not rely on external liquidity providers who can be mercenary and have interests at odds with the protocol. Additionally, B Protocol can ensure that liquidity is centered around the current price while also being able to control slippage for buy orders by placing more BPRO 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 B Protocol.

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

Specification

  1. B Protocol will supply 100,000 BPRO to the Visor position manager contract called the Hypervisor (hypervisor/Hypervisor.sol at master · VisorFinance/hypervisor · GitHub) , which will mint fungible ERC-20 LP tokens to a whitelisted address here: 0x11B20aEF260837Cd82D3d8099aF46a2B6D66e20C

  2. Visor Finance and Gamma Strategies will utilize their strategies to manage the price ranges with the express goal of lowering slippage and generating yield

1 Like

i noticed 8-12 days ago there was a significant shift in liquidity which maybe can be related to the Liquidty proposal. Whats visors position on that?

image

I would say that it certainly improves the situation to have more liquidity in there than not. However, the purpose of having protocol-owned liquidity is so that you have a consistent and sustainable source of liquidity. Often times, it is a bit risky to rely on 1 large liquidity provider who can leave when you need them most.

1 Like

A bit in delay, but just to have it “on protocol” -
BIP #8 didn’t reach the required quorum of 250k BPRO for a YES vote.
Further discussions are welcome to see how to move forward on this issue.

https://snapshot.org/#/bpro.eth/proposal/0x47a6be7cf67d8636caf751b54e1e6c13e2c6de2c425c23fd8c43708695b0ff92

1 Like

Sure, happy to answer additional questions and make adjustments to the past proposal as well.

As far as the current liquidity in the 1% BPRO pool, it appears that the majority of the liquidity is out of range. Shifting down the limit position may be ideal.