[UNI-V2-COMP-ETH] MIP6 Collateral Onboarding Application for Uniswap V2 COMP-ETH LP Token
- Who is the interested party for this collateral application?
- Provide a brief high-level overview of the project, with a focus on the applying collateral token.
Uniswap is a decentralized protocol that allows for permissionless asset exchange and passive market making. Uniswap uses an invariant function (
x * y = k) to quote prices of asset pairs based upon the relative quantity of those assets in a liquidity pool. If the price differs from the prevailing market price, arbitrageurs are incentivized to trade against the pool to correct the price discrepancy. Any user can join a liquidity pool by depositing equal valued amounts of each asset.
To incentivize users to provide liquidity, 0.3% of each trade is retained by the pool as a fee, increasing the underlying token balances of all participating LPs. However, being an LP is not without risk, as the pool will programmatically buy assets as the price falls or sell as the price appreciates. This leads to a phenomena known as “divergence loss”, where larger price moves cause LP tokens to underperform versus a benchmark of simply holding 50% of each asset.
The UNI-V2-COMP-ETH LP token is the pair consisting of ETH and COMP. This token currently has $4,000,000 of liquidity spread among 450 total holders. The top holder accounts for nearly half of pool liquidity.
Uniswap v2 pool contracts are mostly permissionless and non-upgradable. However, UNI governance has the ability to activate a 0.05% protocol level swap fee (reducing swap fees received by LPs from 0.3% to 0.25%) after a 180 day timelock, which could make participating as a Uniswap LP less economical. Uniswap’s contracts have been audited and are among the most battle tested of any application, but it is possible that an undiscovered flaw could lead to loss of funds.
- Provide a brief history of the project.
Uniswap was first deployed to the Ethereum mainnet on November 2, 2018. On May 18, 2020, Uniswap v2 was launched. Liquidity increased sharply beginning in late August when Sushiswap began incentivizing deposits. The UNI governance token was launched in September, partly in response to liquidity migrating to Sushiswap, and incentives helped Uniswap regain primacy in decentralized exchange liquidity. Incentives have now ended as of November 17, 2020, and it’s unclear if/when they will be reinstated.
- Link the whitepaper, documentation portals, and source code for the system(s) that interact with the proposed collateral, and all relevant Ethereum addresses. If the system is complex, schematic(s) are especially appreciated.
Source Code: Uniswap · GitHub
UNI-V2-COMP-ETH token contract: https://etherscan.io/address/0xcffdded873554f362ac02f8fb1f02e5ada10516f
COMP collateral application: [COMP] MIP6 Collateral Onboarding - Compound
- Link any available audits of the project. Both procedural and smart contract focused audits.
- Link to any active communities relating to your project.
- How is the applying collateral type currently used?
UNI-V2-COMP-ETH LP tokens allow users to deposit equal values of the two constituent assets and earn trading fees proportional to their liquidity provided. When trading volumes are high relative to price drift, LPs can benefit from higher returns versus simply holding the individual assets. UNI-V2-COMP-ETH is not currently integrated with other defi apps.
- Does one organization bear legal responsibility for the collateral? What jurisdiction does that organization reside in?
UNI LP tokens are permissionless assets, with no legal issuer or freeze/blacklisting functionality.
- Where does exchange for the asset occur?
UNI-V2-COMP-ETH can be exchanged for its underlying constituents permissionlessly via the Uniswap v2 contracts and front end UI. ETH and COMP are traded on a wide variety of decentralized and centralized exchange venues.
- (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.
- (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.
- (Optional) List any possible oracle data sources for the proposed Collateral type.
UNI-V2-COMP-ETH value can be determined based on the value of underlying assets.
- (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
Disclosure: I hold tokens mentioned and am a participant in Uniswap governance. This collateral application is for informational purposes only, and does not constitute advice of any kind.
Copyright and related rights waived via CC0.