[G-UNI DAI / USDP] Uniswap V3 LP ERC20 Collateral Onboarding Application

Proposal Preface:

The first weeks of the G-UNI DAI/USDC Maker collateral type have proved a success - the G-UNI position is earning an average of roughly ~5% APR since its inception, which means 100% yearly returns on principal when leveraged to the maximum 20x with a Maker Vault. These returns are lucrative and the DAI/USDC peg is strengthened by the 50 million worth of liquidity placed in a tight range in the Uniswap V3 market. Most importantly the system is stable overall: G-UNI token prices are steadily increasing (as the G-UNI position earns and compounds fees), leaving extremely low risk of liquidation/insolvency, even while most positions are maximally leveraged.

There is clearly demand for more collateral assets of a similar type. The G-UNI fungible Uniswap V3 positions can be used for any Uniswap V3 pair, though with underlying assets that are volatile against each other these positions can be more difficult to reason about (will the position be rebalanced as prices move? If so, under what strategy? And what are the implications if this position is large and the strategy is public?). Before getting too complex with volatile token pairs (coming soon), we propose simply onboarding more pairs with assets that have a stable price correlation. Here, LPs can get good returns in a highly concentrated V3 position without needing to worry about a rebalancing strategy. Stablecoin pairs are the natural fit for simple fixed-range G-UNI tokens used as collateral for leveraged LPing in stablecoin markets. Thus we propose onboarding

G-UNI DAI/USDP (PAX) 0.05% tier deployed here. The proposed range is an immutable 20 tick range (-10, 10) which corresponds to a price range of 0.9990 - 1.0010 centered exactly at 1:1.

USDP (PAX) is the second largest stablecoin collateral backing DAI (after USDC) and continues to grow. It has a strong reputation and it reaches markets and communities that need certain regulatory guarantees. We can easily expand upon the positive impact of the G-UNI DAI/USDC pair by adding this corresponding DAI/USDP collateral type.

The set up, assumptions, and the position range are purposefully as similar as possible to the existing GUNIV3DAIUSDC collateral already onboarded and deployed to make the proposal simple. A full record of the G-UNI DAI/USDC onboarding application is here along with the associated MakerDAO risk analysis

Finally, here is another full application copy below:

1. Who is the interested party for this collateral application?

This collateral application was created by the Gelato Network development team. Gelato offers a series of automation services focussed on DeFi, including limit orders on AMMs, automated debt management for e.g. MakerDAO Vaults and an automated liquidity provision solution for Uniswap v3 Liquidity provides called G-UNI , the latter being the proposed collateral type for this proposal.

2. Provide a brief high-level overview of the project, with a focus on the applying collateral token.

G-UNI is an ERC20 wrapper around Uniswap v3 LP NFTs which can be used to make liquidity provision on Uniswap v3 fungible and its fee reinvestment process automated. It basically turns Uniswap V3s liquidity positions into Uniswap v2 like ERC20 tokens.

G-UNI tokens have the following functionalities:

  • Simplicity: Having a simple one size fits all liquidity strategy making market making very accessible for everyone as users don’t have to actively manage their position
  • Fee Compounding: Reinvesting the earned trading fees back into the pool resulting in an automated compounding effect
  • Fungibility: One Uniswap LP token is equal to another, meaning they can be used as money legos in other protocols such as on Maker for collateral or for liquidity mining schemes like what Instadapp is doing, making the underlying capital hyper-efficient

Users can always exchange G-UNI tokens for the corresponding underlying tokens (e.g. DAI & USDP) and the accrued fees that are currently being stored on Uniswap v3 by the G-UNI contract. G-UNI uses no external oracles or other dependencies and G-UNI tokens can be minted and burned at any point in time by liquidity providers.

The automated reinvestment of fees is a key feature of G-UNI pools, which is conducted by bots of the Gelato Network which act similar to Maker Keepers. Those bots constantly monitor the accrued fees of each pool and execute the fee reinvestment function when sufficient fees have been collected and it is worth executing it. Ranges of the USDP / DAI position cannot be adjusted by bots and will remain static.

Each G-UNI pool takes a 1% cut of the accrued fees when reinvesting the fees for building, operating and further improving the G-UNI system.

Not Gelato nor anyone else will have any special privileges for the discussed DAI / USDP G-UNI pool, making the system fully immutable.

You can watch a video of Gelato Legendary Member Ari Rodriguez explaining how G-UNI works here .

3. Provide a brief history of the project

Gelato Network was started 2 years ago by Hilmar Maximilian Orth and Luis Schliesske after working together with Gnosis on building automated trading functionalities on top of one of their decentralized exchanges. The two quickly realized that it was very cumbersome and hard to maintain specialized bots / keepers that have to be custom developed for each use case that requires some transactions to be executed automatically at certain times in the future.

Thus they sought to build a generalistic protocol that enables developers to plug into an already existing decentralized network of bots that they can task to execute arbitrary smart contract functions on Ethereum. Since launching in July 2020, many of the top projects in DeFi have integrated Gelato to power their web3 automation needs, including projects such as Instadapp , Furucombo, KeeperDAO, various Chainlink Node Operators and AMMs such as Spookyswap .

Gelato’s development team not only builds the underlying protocol and the infrastructure, but also develops interesting automation use cases in-house themselves, of which G-UNI is one of them.

G-UNI went live in June of 2021 and has been used by a number of other protocols (Instadapp, Float, Frax, Fei) as a Uniswap V3 primitive for Liquidity Mining.

4. Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses.

5. Link any available audits of the project. Both procedural and smart contract focused audits

Two independent security audits were completed and visible here on Github

Also MakerDAO did a risk analysis of the system here on the forum

6. Link to any active communities relating to your project

7. How is the applying collateral type currently used?

G-UNI tokens are used to enable multiple parties to provide liquidity on Uniswap v3 collectively around the same range in a fungible manner. The first G-UNI pool which was deployed after the initial INST / WETH pool is the discussed USDP / DAI G-UNI pool which earns fees with a very concentrated liquidity around the $1 range (e.g. 0.9990 - 1.0010) of the DAI / USDP pair on Uniswap v3. Generated fees are directly reinvested into the pool and accounted for when LPs burn their G-UNI tokens in order to receive back the underlying DAI / USDP.

As the USDP / DAI price should remain rather constant, we don’t need any readjustments of the range.

8. Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?

The collateral is deposited in Uniswap v3 and Gelato will have no admin rights to it. All G-UNI contracts are deployed as proxies initially so that we can still fix issues if they might be discovered after the audits have been concluded. However, before Maker starts the on-chain voting to list the DAI / USDP G-UNI pool token as collateral, we will renounce our ownership of the proxy and make the contract immutable. After that this particular G-UNI pool will be completely immutable and will bear no special manager or admin privileges.

9. Where does exchange for the asset occur?

The G-UNI DAI / USDP token is just a wrapper around regular DAI and USDP tokens which can be exchanged on multiple decentralized and centralized trading venues. G-UNI tokens can be burned at any time to redeem the underlying DAI / USDP based on the current ratio of the pool.

10. (Optional) Has your project obtained any legal opinions or memoranda regarding the regulatory standing of the token or an explanation of the same from the perspective of any jurisdiction? If so, those materials should be provided for community review.

Not applicable.

10. (Optional) Describe whether there are any regulatory registrations for the token and provide related documentation (including an explanation of any past or existing interactions with any regulatory authorities, regardless of jurisdiction), if applicable

Not applicable.

11. (Optional) List any possible oracle data sources for the proposed Collateral type

The same oracle that is used for DAI and USDP, just weighted according to the current weights they have in the G-UNI pool which changes according to price movements on Uniswap v3.

12. (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type

Gelato Network could potentially help with that, but we assume other Maker Keepers that are already doing USDP liquidations would be most suitable for helping with those kind of liquidations.

Happy to answer any questions you might have :slight_smile:

7 Likes

Good luck with your application, I find it important how G-UNI solves the incompatibility of the Maker protocol with Uniswap NFTs.

Also, how fast USDP is growing in our protocol is amazing and proves once again the importance of maker for DEFI.

Are you proposing that it should be handled in the same way as the 1% stability tariff or not? That’s the only thing that is not clear to me with this application.

2 Likes

Ah, I thought the stability fee was at the discretion of Maker, but I would imagine the same 1% stability fee makes sense yes.

1 Like

It is. Our Risk CU will likely make a recommendation

3 Likes

If the current PSM tin/tout to 0 poll passes (which is likely) this and other DAI-stablecoin pairs will see less and less volume on various exchanges.

I would wait to see what happens to the GUNIV3USDC-DAI returns before trying to push more of these through.

BTW: exchanges like 1inch and others will almost certainly code a trade path from DAI-stable or stable-DAI right through the feeless PSM bypassing all LP on other exchanges to complete the trade for the lowest fees.

1 Like

Relative trading volume to assets deposited of USDP is magnitudes lower compared to USDC across Uniswap v2,3 and Sushiswap. Based on the past 7 days in Uni v3, trading volume to TVL of USDC was 15x higher than USDP, meaning that yield from trading fees is much lower for any LP with USDP. I am not sure if this pair really makes sense right now due to the low trading volume.

1 Like

I personally see it as necessary.

Well, even if with the PSM at 0, Maker will be a very tough competitor, we know that we constantly have detentions because the PSM is full.

Do you have USDP or DAI and you want to give them in liquidity, why not? Where do we leave the arbitrage bots or the users that operate only in uniswap?

It may not leave the LP fees you would like to see for obvious market size, but it seems like a sensible option, you have 1 Million USDP, you go to the PSM swap for half DAI, you go and generate liquidity in G-UNI DAI/USDP.

You go back to the protocol and you can lend DAI, you are leveraging yourself safely and generating some commissions for the group.