Thank you for this. Maxim, the founder of Overnight Finance here. We have created delta-neutral strategies based on Arrakis and Gamma - ETS. We were a major liquidity provider to Arrakis’s wETH/USDC vault, expect to be the major provider to both Gamma and Arrakis once the program resumes.
I would like to make a proposal about the pairs to be incentivized and offer for Overnight Finance to participate in the liquidity mining program as Uniswap’s partner.
First, it could be helpful to have a specific vision of what we are trying to achieve on OP. So far, Polygon is by far the most successful of Uniswap implementations outside of mainnet ( i was not permitted to include the screenshot of the Polygon’s pool analytics page).
Pairs leading by volume are ETH/USDC, Matic/USDC and USDT/Matic - all 3 are crypto-to-stable pairs. None of them are 0.3% fee tiers. Obviously, OP and Matic are not the same as OP is not a gas token, ETH is. But if Uniswap is to lead on OP, it should put its efforts in
- wETH/USDC -0.05%
- OP/USDC - 0.05% (not 0.3%)
- wETH/DAI - 0.05% (not 0.3%)
There is an opinion expressed and supported above that wETH/USDC is fine as is and should not be promoted, and other pairs require incremental rather than a major push. Although, tactically justified, i think this is wrong strategically: Uniswap is not leading on OP in the most important pairs and is at par/behind Woofi and Synthetics (I tried and was not permitted to include 1inch trade routings for 100K USDC trades into OP and ETH - but they show very high percentages for Woofi and Synthetics, often exceeding those of Uniswap)
Bottom line, a major push on wETH/USDC and promoting lower fee tiers on OP/USDC and wETH/USDC should be the strategic goals and LM program needs to target to achieve it.
Second, I would like to propose to include Overnight’s delta-neutral strategies ( 'ETS") based on Uniswap V3 on OP into this LM program by compensating underlying volatility rather than a uniform reward distribution improving the APY. I clarify below how that would work and what unique benefits this approach would bring
Overnight’s has been producing delta-neutral strategies based on Uniswap V3 (example on our dApp) and Quickswap V3 (example on our dApp). Essentially, people mint the ETS with USDC (or DAI), which is then used to borrow wETH and farm wETH/USDC on Uni V3 within a [concentrated] liquidity range. The position is then regularly rebalanced using external bots. Profit is calculated daily in USDC and passed over to ETS holders via rebase.
The delta-neutral strategy based on Uni V3 is profitable per se, without rewards. But it can have negative days, e.g. recently during FTX collapse or Binance FUD. The not so often daily losses are the major barrier to bringing conservative stablecoin yield maximizers into ETSes - this investor segment is more concerned with not losing rather than maximizing profits; if this çoncern’ is eliminated by Uniswap with rewards, that would channel significant liquidity to underlying Uniswap crypto-to-stable pairs.
Thus, we propose for Uniswap to allocate part of the LM program to ‘çompensating ETS negative yield on the days it occurs’ rather than providing the usual rewards increasing APR on average across the board. This can be done by deploying and seeding overnight’s insurance for the respective ETSes (example on our dApp).
This approach to LM would provide the following benefits to Uniswap:
- stimulate concentrated liquidity where Uniswap excels rather than wide liquidity, where Uniswap is close to par with all the Uni V2 forks
- bring new liquidity from the ‘stablecoin investor segment’ into crypto-to-stable pairs, the source of liquidity Uniswap has not fully tapped into yet
- reward efficiency as measured by trading volumes per unit of rewards - by spending rewards only on compensating negative days; also due to underlying profitablity of delta-neutral strategies on Uniswap V3 per se and larger volumes that concentrated liquidity drives
I understand this is unconventional approach and Overnight are not a well known player. We are obviously open to a long DD and backtesting of our ETS technology. However, I suggest to just give it a try and assess the results after Phase 1. Also, tagging @OPuser , the leader of the Optimism’s DeFI committee C, which recently awarded Overnight a grant to promote its products, including ETS. I hope @OPuser could provide a reference.
At your disposal to answer questions here and over video if necessary.
Merry Christmas everyone!