[UNI-V2-DAI-WBTC] MIP6 Collateral Onboarding Application for Uniswap V2 DAI-WBTC 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-DAI-WBTC LP token is the pair consisting of DAI and WBTC. This token currently has only $12,000 of liquidity across 9 holders, but this could potentially improve if LPs can benefit from greater capital efficiency.
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-DAI-WBTC token contract: https://etherscan.io/address/0x231b7589426ffe1b75405526fc32ac09d44364c4
WBTC collateral forum post: [WBTC] - WBTC Collateral Request For Comment
- Link any available audits of the project. Both procedural and smart contract focused audits.
Audit report: Uniswap V2 Audit Report
- Link to any active communities relating to your project.
- How is the applying collateral type currently used?
UNI-V2-DAI-WBTC 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-DAI-WBTC 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.
The WBTC token is a 1:1 representation of BTC, with underlying assets held in custody by BitGo subject to governance by a consortium of prominent defi protocols (including Maker).
- Where does exchange for the asset occur?
UNI-V2-DAI-WBTC can be exchanged for its underlying constituents permissionlessly via the Uniswap v2 contracts and front end UI. DAI and WBTC are traded on a wide variety of decentralized and centralized exchange venues. WBTC can also be exchanged for BTC via designated merchants (KYC required).
- (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.
I am not aware of any publicly available legal opinions addressing the project or token’s regulatory standing.
- (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-DAI-WBTC value can be determined based on the value of underlying assets. Maker already has oracle data sources for DAI (pegged to $1) and BTC, which can be used as part of this asset’s oracle implementation.
- (Optional) List any parties interested in taking part in liquidations for the proposed Collateral type.
Disclosure: I hold UNI tokens and am a participant in Uniswap governance. This collateral application is for informational purposes only, and does not constitute advice of any kind.