Discussion on Uniswap liquidity pooling as a potential tool

There has been some discussion in the past around the protocol minting dai and buying up assets on the open market like usdc and eth. Both of these asset types have disadvantages. Ethereum still is incredibly volatile and so is not a secure reserve currency. Usdc is stable, but is under regulatory and custodial jurisdiction. Neither of these tokens produce any yield.

We have also had some discussions about increasing dai reserves held by the protocol to allow us to sell dai on the market later when the peg breaks up, or to mute losses during market crashes without selling mkr on the market at a low price. However, holding dai in reserve reduces the total dai supply in circulation, and makes us more likely to break peg on the upside. There are also weird game theoretic issues during ES.

I propose we look into the MakerDAO providing liquidity to uniswap and holding uniswap tokens in reserve. This would mitigate many of the issues with the previously proposed solutions. Uniswap tokens are fully decentralized tokens, with relatively low volatility compared to ethereum and other base cryptocurrencies (volatility is square root of the underlying tokens), and provide a long term yield through trade fees. We also can hold twice as much reserve with the same liquidity impact as if we were to just hold dai through the dai-eth uniswap token.

Providing liquidity through uniswap in exchange for tokens would mean that any dai we print would not be unbacked. However, newly printed dai would not be overcollateralized, and since uniswap tokens are still somewhat volatile, the newly printed could become undercollateralized by the purchased assets. I believe this is a reasonable risk to take, since the yield over the long term should cause the assets purchased to accrue value relative to the dai minted. The best metaphor I can think of is that uniswap tokens are essentially cryptocurrency bonds.

An added bonus of all of this is that we support uniswap, and improve their liquidity, improving market efficiency. This also can improve the efficiency of our auctions since keepers will be able to recycle collateral more easily. Our auctions being more efficient means we are less likely to accrue losses during dramatic market events in the first place.


Instead of providing liquidity to uniswap, can’t we provide liquidity to oasis?

Oasis has no associated token that holds value within the protocol, so this would involve printing unbacked dai. Also, there is no yield for mkr holders with this proposal.

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Which uniswap liquidity pool(s) are we talking about here?

Ideally Maker shouldn’t need to do this kind of activity themselves since their users can do it, and if it is profitable, they should be incentivized to do it. I do wonder why there isn’t more DAI in DEXes - maybe they just aren’t competing strongly enough with the lending services that are incentivizing deposits with governance tokens?

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Probably we would use the highest liquidity uniswap markets:
namely usdc-eth and dai-eth. It looks like atm eth-ampl has the highest liquidity, but ampl is very new and this is likely due to the recent defi/yield farming craze.

There was talk of adding uniswap tokens as collateral types awhile back, but the concern was we wouldn’t be able to achieve a high enough utilization rate for it to be worth it in the near term. With the protocol providing liquidity directly though this wouldn’t be an issue because we could directly control the utilization rate, and wouldn’t have to wait for this to happen organically.

usdc-eth is no brainer as we support eth and usdc.

dai-eth is quite safe from a borrower point of view as there is some DAI in it.

usdc-dai would be really awesome. Currently most of the swap goes through usdc-eth then eth-dai (twice the fees) because usdc-dai is too small. Incentive it would be beneficial to the DAI ecosystem. Something like a DC of 110-120% and 2% RP.

Same would apply for small pool with DAI and a good token (let’s say PAXG). DAI would benefit from better liquidity there. It could be an argument for DAI versus USDC or USDT.

That’s ecosystem building for the good of DAI and solving the peg issue.

I let the risk team find what are the implications of having Uniswap ***-dai backing some dai.

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The uniswap contract is very simple, it will be better to plug our own contract to oasis instant and provide the liquidity with no fees, like oasis does for the market part.
the contract will allow only makerdao to push/withdraw dai into it.
That will allow markerdao to create a useful reserve and a way to directly inject or withdraw liquidity.

Although, it is a easy and quick solution to use uni swap.