Should Uniswap Provide Voltz with v3 Additional Use Grant

Temperature Check
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TL;DR

Voltz is a new defi primitive that brings interest rate swaps to DeFi in a manner that is up to 3000x more capital efficient than alternative models. This is achieved through a variety of mechanisms, including the use of concentrated liquidity pioneered in Uniswap v3 (ref). However, since v3 is subject to a Business Source License, Voltz needs an Additional Use Grant to allow us to use aspects of the v3 code base within the Voltz AMM (ref).

We recognise the significant R&D that went into v3. As a result, we would like to offer the Uniswap Treasury 1% of Voltz’s future token supply.

Beyond the financial benefit for Uniswap token holders, if approved, this will also represent a first for DeFi and set precedent for future Additional Use Grant requests. In addition, we also believe there are a number non-financial benefits to Uniswap, including:

1. Interest Rate Swaps are a core pillar of well-functioning financial systems. By supporting Voltz, Uniswap is helping create a fundamental DeFi primitive, which will ultimately help fuel the growth of the entire sector. This will benefit everyone wanting decentralised finance to become the future financial system for billions of people around the world.
2. Uniswap continues to be seen as the grandfather of DeFi. By allowing a non-competing and innovative protocol to leverage the Uni v3 codebase, not only will it help the whole sector grow, it will also further strengthen Uniswap’s reputation as one of the core enablers of the decentralised finance movement.
3. Voltz will help amplify the ecosystem’s understanding of how concentrated liquidity provisioning works. Having a non-competing AMM leveraging Uni v3 code helps to further educate the market on how to LP via Uni v3. This should have a second-order impact on liquidity that ends up deployed on Uni v3 directly.

As a result, we humbly request Uniswap’s community to consider this proposal in depth.

We look forward to having a fruitful conversation with the Uniswap community and look forward to answering your comments and questions.

About Voltz

Voltz is a noncustodial automated market maker for Interest Rate Swaps (IRS). The protocol uses a concentrated liquidity virtual AMM (vAMM) for price discovery only, with the management of the underlying assets performed by the Margin Engine. The combined impact of these modules means counterparties can create and trade fixed and variable rates through a mechanism that is up to 3,000x more capital efficient than alternative interest rate swap models.

Critically, Voltz has figured out how to trade fixed and variable rate exposures through a two-axis AMM, leveraging the concept of concentrated liquidity pioneered in Uniswap v3. Whilst Voltz uses some of the v3 code base, there are a large number of additional complex innovations that had to be unlocked in order to create an Interest Rates Swap specific AMM. These innovations have a number of important consequences when considering the merit of providing Voltz with an Additional Use Grant:

1. Voltz and Uniswap are complementary not competitive

Interest Rate Swaps are a core pillar of well-functioning financial systems. By bringing Interest Rate Swaps to DeFi, Voltz should help accelerate DeFi’s displacement of traditional finance. In turn, this will help boost the growth of the sector, whilst also unlocking a new wave of financial primitives, structured products and trading strategies for the whole ecosystem.

Uniswap is not an Interest Rate Swap AMM. As a result, Voltz and Uniswap don’t compete. Instead they can be complementary to each other - where one grows, the ecosystem grows, which in turn helps the other grow too.

By providing Voltz with an Additional Use Grant, Uniswap can help accelerate the growth of a fundamental primitive that’s needed within DeFi.

2. Voltz cannot route trades via Uni v3, instead the code is native to Voltz AMM

There are numerous additional innovations required to create an Interest Rate Swap specific AMM. Whilst parts of the v3 code base are required to create the concentrated liquidity logic, trades can’t simply be routed via Uni v3 since the v3 AMM is not designed for Interest Rate Swaps.

Instead the concentrated liquidity logic is native to the Voltz AMM, meaning an Additional Use Grant is required. It’s possible for the Voltz Labs team to implement concentrated liquidity logic in a way that doesn’t utilise some of the Uniswap v3 code base. However, the v3 code is battle-tested and already optimised to enable concentrated liquidity to exist in the most efficient way. As a result, the cleanest and most logical option is to request an Additional Use Grant.

3. Uniswap cannot adjust their AMM to create an IRS market

Following the above - the creation of an Interest Rate Swap specific AMM requires a significant amount of new code and innovation. As a result, we think it’s highly unlikely Uniswap can simply adjust the v3 code base to enter the interest rate swap market - meaning Voltz and Uniswap will remain complementary rather than ever becoming competitors.

Alongside this, Voltz is also highly aligned with the values of Uniswap, decentralised finance and the broad web3 ecosystem more generally. Voltz Protocol will be managed by the VoltzDAO. This will enable Voltz to effectively become a public good that is owned and managed by the community that uses it. In turn this will continue to support the wider movement of DeFi to build a more transparent, more equitable and more efficient financial system.

Our Proposal

We recognise the significant R&D that went into developing the concentrated liquidity logic used within Uniswap v3. Therefore, we would like to offer the Uniswap Treasury 1% of Voltz’s future token supply for the Additional Use Grant. Voltz Tokens will be provided to Uniswap Treasury following the Voltz Token Generation Event.

Beyond the financial benefit to Uniswap token holders, this will also represent a first for DeFi and set a precedent for future Additional Use Grant requests. In addition, we also believe there are a number non-financial benefits to Uniswap, including those outlined in the TL;DR.

Conclusion

We’d like Uniswap’s community to consider this proposal in depth. Not just based on the merits of the proposal itself, but also on the precedent this sets as an industry first for DeFi.

We look forward to having a fruitful conversation with the Uniswap community and look forward to answering your comments and questions.

Note: we wanted to share this proposal with the community for digestion and feedback. If feedback is directionally positive, we’ll initiate the Temperature Check on Snapshot in the new year.

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This is definitely an interesting additional use case. I had joined the Voltz Discord and asked about how Voltz AMM will interact with Uni-v3, but unfortunately I was not able to join the AMA that included this question (waiting for the post-AMA answer/update post to come out). I guess this post here somewhat answers the high-level question, though I am still very curious and interested in the details in implementation.

Also, one more question – what license will the Voltz AMM code fall under?

Thanks.

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We recognise the significant R&D that went into v3. As a result, we would like to offer the Uniswap Treasury 1% of Voltz’s future token supply.

A great way to set a precedent on cooperative interactions between DAO’s!

The proposal is straight forward, it does not ask for any Uni Funds, rather it is providing a symbiotic association through the acknowledgement of Uniswap’s innovation and effort.

1. Interest Rate Swaps are a core pillar of well-functioning financial systems. By supporting Voltz, Uniswap is helping create a fundamental DeFi primitive, which will ultimately help fuel the growth of the entire sector. This will benefit everyone wanting decentralised finance to become the future financial system for billions of people around the world.

I am not familar with how Intrest Rate Swap’s work, but it is something I would be intrested in learning more about.

Our Proposal

We recognise the significant R&D that went into developing the concentrated liquidity logic used within Uniswap v3. Therefore, we would like to offer the Uniswap Treasury 1% of Voltz’s future token supply for the Additional Use Grant. Voltz Tokens will be provided to Uniswap Treasury following the Voltz Token Generation Event.

Have you recieved a Uniswap’s Grant in the past, or is the name Additional Use Grant a new term relating to using the V3 code in a novel way?

Also just to clarify: this proposal is not asking for any UNI token transfer, rather it is looking to distribute an allocation to the Uniswap Treasury for use of the V3 code?

I like the direction of the proposal, and I am in support of a Additonal Use Grant Model.

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This is an interesting suggestion~
Can make a tentative exploration

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I’m Erin from Avantgarde Finance. We have done the majority of the dev work on Enzyme Finance, where among other things we have built integrations that allow Enzyme vault managers to trade and provide liquidity on both v2 and v3 of Uniswap. We are generally supportive of this proposal and the precedent it sets.

The Business Source License was implemented in Uniswap v3 to protect the Core codebase and allow for the Uniswap community to build an ecosystem around it (according to the blog post anyway, we weren’t in the strategy conversations) without having to fend off another vampire attack. Importantly, the post goes on to mention that “Uniswap governance can … grant exemptions to the license at any time…”.

In our opinion, we should not interpret the protection this license confers not as “no one can build on the core codebase except Uniswap Labs” but rather “no one can build on the Core codebase except members of the Uniswap community as decided by Uniswap governance”.

Granting the Uniswap treasury a meaningful portion of the Voltz token supply provides at the very least an economic alignment of the two protocols that we think is a meaningful signal that Voltz fits the bill as a community member. And given that

Voltz Protocol will be managed by the VoltzDAO

the grant presumably enables Uniswap to have a say in how Voltz grows. That said, we’d be interested to know what governance mechanisms you’ll be using @simonj?

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I like the idea, but think it should be 10% - 15% token allocated into uniswap treasury to make it matter. 1% is too immaterial.

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I think it is a good question on the rational for Voltz to go with 1% vs say, 2%, 3% etc.

I am not opposed to the 1% proposed here, but am curious to how the number was arrived. As it does set a precedent to similarly structured proposals.

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hey @uniyj - ahh shame you missed our AMA - but we’ll be posting some of the key takeaways over the holidays! fwiw, there’s actually been some discussion in the voltz discord about this recently if you choose to jump back in :).

On the license - our understanding is that we need what’s called an “Additional Use Grant” from uniswap governance, as shown here: v3-core/LICENSE at main · Uniswap/v3-core · GitHub. But happy to be corrected if we’ve got that wrong!

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Great to hear you’re supportive of the proposal! :smiley:

On your questions:

Additional Use Grant
No we haven’t ever received a grant from Uniswap. Instead, our understanding is that Voltz needs what’s described as an “Additional Use Grant” from Uniswap Governance to use the v3 code. According to the License, this then needs to be listed at v3-core-license-grants.uniswap.eth (as shown here). But happy to be corrected if we’ve misunderstood something!

Tokens
Yes that’s right - we’re not asking for any UNI token’s. Instead we’re proposing we provide Uniswap with 1% of Voltz’s future tokens for the Additional Use Grant

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hey @jonsnow sorry to hear you think 1% is too low. it certainly wasn’t intended to be perceived as an immaterial amount! clearly though there’s no precedent here, but we were looking to put something attractive together as a proposal :slight_smile:

There are also a number of non-financial benefits associated with the proposal too - what’s your perspective on those?

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From a Voltz perspective, we were keen to put a “stake in the ground” with something we felt was attractive for the Uni community that also recognised the R&D that had gone into v3.

When considered alongside the non-financial benefits to Uni and the sector as a whole, plus the fact the Voltz model is completely unique except for the concentrated liquidity logic, we felt 1% was directionally correct.

But we were keen to initiate conversations off the back of our proposal - so curious to hear your thoughts too?

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Just some initial thoughts off the top of my head for the 1% fee.

If I hypothetically value Voltz in the future at 1 billion dollars market capital, then the license fee for V3 license and additional value to the Uniswap Treasury is around 10 million dollars. This 10 million as a fee seems pretty good to me as it equates to a 3 cent EPT (earning per token, 290k holders~ /10million) for very low engagement other than the initial vote.

However, the 1% stake in Voltz might not be enough at stake for UNI governance to actively engage participants around Voltz DAO proposals in the future. This is a bigger unknown with DAO voting on other DAO’s and how to incentives participation. The 1% is good for just the narrow scope of the V3 Additional Use Grant, with future incentive for UNI treasury/ or UNI holder’s to engage in active participation in the Voltz Governance.

Also, Thank you for answering my questions on the Additional Use Grant. I am not familar with how it is suppose to be used. Your research look like it is the right interpretation.

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I think it is less of compensating R&D cost, but the downside reputational risk UNI community is underwriting. If there is a “hack” or “exploiting” event happens, and even if it is actually not related to the code of V3, people might still thinks it shows potential vulnerability in Uniswap V3 code. This is the reputational risk the community is undertaking. That’s why I think 1% is immaterial for the community to take this risk. If the project is valued between 100mm-1bn, the marginal value to the uniswap treasury is only 1-10mm, but if a reputational damaging event happened, a 10-20% sell off can cause a few bn market cap loss for Uniswap. If we probability adjust it, say 1% of chance, that’s would still be $10mm - $100mm.

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Hey @jonsnow, thanks for this! Great to hear your concerns and see your thinking.

That said, it’s not clear to me how a (hypothetical) hack of Voltz would cause rational actors to sell off 10-20% of Uni without first checking the underlying cause of the exploit. In addition, if a hack were to occur then the likelihood of it being caused by Uni’s codebase (before digging into the details) is only around 5% given that only c.5% of our code is like-for-like from v3, with another c.15% refactored to make it work for interest rate swaps / our model. So it feels like the downside risk to Uniswap is extremely low.

But when looking at the upside, it’s worth adding that derivative trading volumes tend to be orders of magnitude higher than spot volumes. So if Voltz has the potential to be worth 1bn, then arguably we’d have found product-market-fit and have the potential to be worth $20-100bn, meaning the “opportunity” is heavily skewed to the upside for the Uni community. That’s before accounting for all the additional second-order benefits of helping the whole ecosystem grow and what that means to Uniswap over the long-term.

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I think it should be at least 5% token allocated into uniswap treasury

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I also think this is an awesome usecase which would be beneficial. Good stuff.

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Hey @cryptoworld, thanks for this! Would be great to hear the reasoning behind your proposition and where it is stemming from.

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Hi. I was asking more about Voltz’s license plan for the rest of your code, i.e. the non-Uniswap-v3-derivative parts. Will it be one of the commonly used open-sourced licensing?

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Hi @simonj and @artur. Could you elaborate on the plans for the governance structure of Voltz? Will you be using Governor Bravo or something else? Trying to get a feel for the non-financial benefits of this token grant.

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Hi Simonj, this is Toby Shorin representing Other Internet. Here’s our Sybil profile.

Thanks for the thorough writeup. Overall, we’re interested in moving this proposal forward. We share Avantgarde Finance’s interpretation of the Uniswap V3 blog post. It’s within the scope of governance to determine exemptions to the V3 code license.

We have one request for Voltz team. Prior to the temperature check, it would be great if you can host a voice call on the Uniswap Discord bi-weekly community call to discuss the proposal and answer any community questions that come up. Let’s connect you with Boris so we get that put together.

One question that was asked on this thread we’d like to follow up on is what governance model you are intending to use with Voltz. Do you have any intentions for Uniswap’s future DAO2DAO relationship and role in Voltz governance?

On that topic, we have one suggestion to offer, drawing from our experience with the GitcoinDAO / Akita token situation earlier this year. Should this proposal move forward, it may be advantageous to consider having Uniswap’s future votes in Voltz governance delegated to one specific Uniswap governance member. In our view, qualifications for this would be a delegate who is familiar with the Uniswap V3 codebase and relevant tokenomics.

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