[UNI-V1] Uniswap Liquidity Tokens as Collateral

Are there exchanges on which these uniswap liquidity tokens are traded? Curious what the data sources would be for the price oracles.

I did see this guy. curious if there are other non-uniswap exchanges though

Price could be based on the NAV of underlying DAI and ETH per pool token

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Might be a place to start but it could overlook the potential income from uniswap trades in and out of dai.

Just doing a little napkin math based on the uniswap.info there was ~4MM in volume on uniswap between 3/31 and 4/06 works out to about $624k annually (@ 0.3% per trade). Pretty sizable revenue given that the total liquidity pool mounts up to about $6MM.

However, we can probably not worry too much about the problem of oracles for now. It seems that if we want to move forward with this then we need to start thinking about how to propose this given the current MIP framework.

If we wanted to move that process along we would need to decide which of the uniswap-v1 tokens that we need to start with (as opposed to the 3 different tokens mentioned in the OP) and start a draft of the MIP that we would be proposing.

Some quick questions i can think might help us make progress on those fronts:

  • Should this proposal be put on pause until uniswap-v2 is released?
  • Are there other uniswap pairs that we should be considering?
  • Should/can we start polling on the forums to figure out which uniswap pair is the most interesting.

No. There is no guarantee that UNI-V2 will be better than UNI-V1. It uses more gas and requires more liquidity per token (quadratic vs linear). Even if UNI-V2 is successful, UNI-V1 will survive.

ETH-WETH
ETH-DAI
ETH-BAT
ETH-USDC

No. We should poll for UNI-V1 liquidity as a whole and then simply add support for all UNI-V1 assets that we already support.

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This idea might be a good candidate to start collecting feedback from the community on. Personally I don’t think that very many of these uniswap tokens make for good collateral, but i would be pretty supportive of us adding the DAI swap token specifically.

Looking at all of the other swap tokens they all seem to have a problem of either a small pool size in terms of NAV / transaction volume or the tokens are held by too small of a cohort. For instance, USDC has one of the largest pools in terms of Liquidity and volume, but about 64% of the swap token supply is held in the top 4 addresses. With those kind of numbers price manipulation seems quite possible.

Additionally i think the DAI swap token specifically would give MKR an interesting lever to pull for the purposes of monetary policy. I.E you might be able to influence how much dai is listed on the exchange through the DAI swap SF. This seems like it could be useful in situations like the one we find ourself currently where DAI has been trading above peg for some time even with near 0% SF on the collateral assets.

But obviously those are just MY thoughts. Probably worth polling the forums to see what the appetite is for uniswap tokens generally vs just say the DAI swap. Maybe add an option for everything but the DAI swap as well since there seems to be some concern ITT about how it will behave in emergency shutdown?

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@Andy_McCall

Are you confused about Uniswap Liquidity Token Pricing?

While, Liquidity Tokens earn revenue, they can be priced at their book value. They don’t trade or ne to be priced at multiples of their book value. Anyone can mint more liquidity tokens or redeem liquidity tokens for a percentage of the underlying assets.

Additionally i think the DAI swap token specifically would give MKR an interesting lever to pull for the purposes of monetary policy. I.E you might be able to influence how much dai is listed on the exchange through the DAI swap SF. This seems like it could be useful in situations like the one we find ourself currently where DAI has been trading above peg for some time even with near 0% SF on the collateral assets.

Also you might be thinking of monetary policy in the wrong way regarding how much DAI is in the ETH-DAI contract. It doesn’t really matter how much DAI is in the contract. In this situation, you’d want more people to use the liquidity tokens as collateral to mint DAI. Hiking the stability fee on liquidity tokens would cause DAI to be burnt.

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What i am trying to get at on the monetary policy front is that this would actually give you a way to inflate the DAI supply by listing on uniswap. Users would be able to take DAI they had to mint a uniswap token then can turn around and take that uniswap token to mint more DAI. If the SF for the uniswap token was sufficiently low i imagine you could use this mechanism create some downward pressure on the dai price.

I’m just trying to express my concerns here that 1 the book value is currently controlled by some very small cohorts currently and 2 some of the book value is pretty small to begin with for some of these swaps and as such easier to influence.

This is called leveraging. It’s not dangerous. You can already do this with every other kind of collateral.

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Yup totally agree. Just to be clear the ability to put downward pressure on DAI prices is IMO a positive and largely why I’m in favor of this proposal.

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Okay sorry, we’re actually in agreement on the monetary policy.

So while these holders could manipulate the # of liquidity tokens, they can’t really manipulate the book value of a liquidity token.

You can manipulate the book value of a liquidity token up by giving fees to liquidity token holders, but you can’t really manipulate it down.

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Maybe, but like i said it may be best to just poll the forums to just see which swaps people think make for suitable collateral. That also seems like the logical first step toward drafting the MIP around this. I can pretty much see 3 schools of thought in this thread:

  1. UNI-V1 tokens as collateral for any asset currently used by the protocol. (BAT, USDC, WETH, DAI, MKR)
  2. Any UNI-V1 token excluding the DAI swap (because we may not understand how that behaves in the event of ES)
  3. Only the UNI-V1 for the DAI swap.

Are there any others that I am missing? If not we could probably could just put up a poll to get some signal for which school of thought would be most favored by the community. Once we knew that we could probably start on a draft for MIP6 and go from there.

Nobody is advocating that. You can drain the ETH from an unsanctioned uni-v1 token by dumping shitcoins into it.

I don’t think anyone advocated that in this thread.

If that’s the case, I’ll officially advocate for it now. Assuming we can properly understand the risks involved it’s the best one to onboard (and we should start with one). The reasons for that over the others:

  • It incentivises the Dai-Eth pool on uniswap.
  • The Dai-Eth pool has more existing liquidity than ETH-BAT, ETH-WETH and ETH-USDC.
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Sorry I was unclear. When i say “any” uni-vi1 swap i really mean any of the ones mentioned here (USDC / BAT / WETH / MKR) save the DAI swap.

The suggested pairs by liquidity (13/04/20):

  • ETH-DAI: $5.8m
  • ETH-USDC: $4.3m
  • ETH-WETH: $1.6m
  • ETH-BAT: $730k

As of today all four are in the top 10 Uniswap pools.

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It looks like the next step is for an interested party to take initiative, MIP6: Collateral Onboarding Form/Forum Template

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Do we have enough alignment at this point on which collateral token we would be writing the MIP for? I’ve been trying to advocate for trying to move this process forward with the DAI/ETH swap but there seems to be some resistance to that idea.

If we agree with @LongForWisdom that we should be moving forward with one UNI-V1 token then IMO we should put a poll up ITT to gain alignment on which UNI-V1 token would be the most preferred. I think once that is agreed on we can probably work on the MIP at that point.

FYI: I managed to read this thread - some good discussion here. I have actually been a liquidity provider to Uniswap V1 and have watched how implied value moves particularly with the ETH DAI pair. I have to think about this somewhat since the real issue here is what happens if the DAI PEG is lost.

ETH/BAT - that one I know for a fact (since I have liquidity there) is pretty much flat - it trades basically as ETH and so I think we can understand better how to manage this one.

I am generally leary of the whole ETH/MKR pair. Mostly beause I would rather see MKR in governance than in uniswap but really we need MKR liquidity generally so I am mixed on this one. I think from a risk standpoing ETH/MKR generally trades together so would have a value mosty reflected by how ETH moves vs. MKR.

I think using the Uniswap tokens are an interesting idea. The ETH DAI uniswap was the most interesting for me since this one actually would move around a lot by definition and hence generated a lot of fees. I think I came out up like 5-6% overall over 3-6 months of being in that.

What is nice about these is that the pricing mechanisms for the base elements of the pair are rather well determined.

One thing about adding collateral - we have to have auction process on virtually everything. Given the low liquidity of the markets in these things and actual ability to add DAI (i.e. market caps really are tiny) I think we need to focus more on adding only a few bigger cap issues that can add materially to the ecosystem in terms of cap and DAI minted than adding tons of small cap stuff that basically has no liquidity.

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Application for the ETH-DAI token is now up: Uniswap v1 Eth-Dai Liquidity Token Collateral Application

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