Grant Application: Concentrated liquidity CoW AMM + Rehypothecation-adapter

Author:

Yevhen Liubchenko Twitter: yevhenx GitHub: leooos33

Ivan Volovyk Twitter: LisVikkk GitHub: ivanvolov

About us:

Yevhen Liubchenko

B.A. in Mechanical Engineering, M.A. in Economics Project Owner (Node-as-a-Service) at Minter (2019-2021) Quantitative Researcher at JMT (2018-2019)

Ivan Volovyk

B.A. in Computer Science, M.A. in Economics Supply Chain Data Engineer at Soley (2020-2022) Solidity Developer at MadFish (2018-2020)

Team Experience

• Liqui Hedgehog (2022-2023): Developed a synthetic ETH vault that provided liquidity on Uniswap V3 and hedged its impermanent loss using Squeeth power perpetuals (the project was shut down due to Squeeth’s legal issues).
• Winners of Uniswap V4 Hookathon 2: Created a rehypothecation hook for maximizing stablecoin yield.
• Winners of Uniswap V4 Hookathon 1: Developed hook-based options.
• Winners of HackDefi with Wintermute (2021): Built a customizable hook DEX (proto Uniswap V4).

Our goal is to improve capital efficiency, mitigate LVR, and increase yield for liquidity providers. We have developed a prototype of the Concentrated CoW AMM and now seeking a grant to bring it to production, enhancing liquidity tools in the CoW ecosystem.

Additional Links:

X (Twitter):

• Yevhen

• Ivan

• Liqui

• Liqui grant status from Opyn

• AtriumAcademy status 1

• AtriumAcademy status 2

GitHub:

• Hedgehog
• V4-Options
• Unicord

Medium:

• Hedgehog LP Strategy

Research forum:

• Introducing Concentrated CoW AMM

Grant Category: Integrations and protocol order flow

Grant Description:

The project consists of 2 main components: Rehypothecation Adapter and Concentrated Liquidity CoW AMM.

Rehypothecation Adapter

The Rehypothecation Adapter serves as a base contract with a custom trading function that deploys all of the AMM liquidity into lending protocols to earn additional low-risk yield while preserving liquidity for trade execution.

For example, in the case of the ETH-USDC CoW AMM it will be:

• The contract deposit both ETH and USDC as collateral on lending protocol (e.g., AAVE)
• We receive ETH from the user for the ETH → USDC swap operation
• In pre-hook: Calculate amount of USDC that we owe to the user and withdraw this amount from lending protocol
• Execute the swap
• In post-hook: Increase our collateral

Note: If the post-hook is not executed, the received liquidity remains idle rather than being returned to the lending pool, reducing potential yield. To address this, the subsequent trade’s pre-hook will detect and reinvest any remaining funds, ensuring the system self-correct and yield opportunities are maximized.

This way, by executing on-demand lending protocol deposits/withdrawals, we significantly boost overall LP returns by collecting both trading fees and interest rate payments.

From the technical integration perspective, this adapter standardizes integration flow for solvers, enabling efficient deposits/withdrawals management while maintaining compatibility with multiple lending protocols without redeployment rather than dealing with manual integration of aTokens-like entities.

Concentrated Liquidity CoW AMM

The second component is Concentrated Liquidity CoW AMM as an enhancement of the original CoW AMM. By integrating a well-known concentrated liquidity model, it enables LPs to significantly improve their capital efficiency and potential returns. By allowing LPs to allocate their capital within specific price ranges where trading activity is highest, this model optimizes fund utilization and increases fee earnings while maintaining MEV-protection following the original CoW AMM approach.

This advancement is crucial for providing deeper liquidity around key market prices and enhancing the returns for liquidity providers in both stablecoin, synthetic asset and volatile asset pools.

Together these 2 products will form a flexible liquidity deployment platform where LPs will be able to choose from multiple AMM options:

• CoW AMM
• CoW AMM with Rehypothecation
• Concentrated liquidity CoW AMM
• Concentrated liquidity CoW AMM with Rehypothecation

Maximizing flexibility and capital-efficiency for LPs, while preserving protection from MEV exploits. Which in turn, will improve trade execution for the end-users bringing more trading fees and liquidity into the CoW ecosystem.

We have already developed a prototype of the Concentrated Liquidity CoW AMM and are now seeking a grant to bring it to production along with the Rehypothecation Adapter.

Grant Goals and Impact:

The primary goal of this grant is to bring the Concentrated Liquidity CoW AMM and Rehypothecation Adapter from prototype to production, creating a flexible and robust liquidity deployment platform for LPs in the CoW ecosystem. Specifically, we aim to:

• Develop a Multi-Option AMM Platform: Allow LPs to deploy liquidity into one of several AMM configurations: CoW AMM, Concentrated Liquidity CoW AMM, CoW AMM with Rehypothecation, or Concentrated Liquidity CoW AMM with Rehypothecation. This flexibility maximizes customization and efficiency for LPs, aligning their strategies with market conditions and yield opportunities. Integrate Rehypothecation for Additional Yield: Enable liquidity pools to earn low-risk yields by deploying liquidity into lending protocols while maintaining on-demand liquidity through automatic deposit and withdrawal mechanisms. This ensures LPs can benefit from both trading fees and yield generation without compromising liquidity.

• Enhance Liquidity, Efficiency, and User Experience: Increase liquidity in stablecoin and pegged asset pools, enhance MEV protection, and streamline the liquidity management experience for both LPs and solvers, leading to more efficient capital utilization and reduced LVR risks.

By bringing these components to production, we aim to significantly improve the efficiency of the CoW Protocol, providing LPs with optimized returns, users with better trading conditions, and the overall ecosystem with enhanced liquidity provisioning options.

We believe that a combination of Rehypothecation + Concentrated Liquidity model will bring a lot of liquidity into the CoW ecosystem, especially for stablecoin and pegged asset pools by offering significantly improved LP returns compared to the existing solutions, like Curve and Uniswap V3.

Milestones:

Milestone Due date Payment Rehypothecation Adapter (RA) 6 weeks 30k xDAI RA Testnet Validation 1 week 10k xDAI Concentrated liquidity CoW AMM (CL) 6 weeks - CL Testnet Validation 1 week 10k xDAI

As we already have developed the MVP of the Concentrated liquidity CoW AMM, we’re requesting a 30k xDAI up-front and 10k xDAI upon completion of each milestone. See the Funding Request section.

Milestone 1

Description: Develop and integrate the Rehypothecation Adapter into the AMM framework. This includes deploying AMM liquidity into lending protocols to earn additional low-risk yield, while maintaining on-demand liquidity through automated withdrawal mechanisms. Initial supported lending protocols will include AAVE, Morpho, Euler.

Deliverables: Smart contract development for the Rehypothecation Adapter. Testnet deployment on Sepolia.

Milestone 2

Description: Complete the development of the Concentrated Liquidity CoW AMM prototype. This includes finalizing the integration of concentrated liquidity features, implementing upper and lower price bounds (sqrtPriceUpper) and (sqrtPriceLower), and ensuring compatibility with CoW settlement contracts. This milestone aims to deliver a fully functional prototype for initial testing.

Deliverables:

• Smart contract development for concentrated liquidity.
• Initial deployment on the Sepolia testnet for functional validation.
• Deploy and test the integrated AMM + Rehypothecation Adapter on Sepolia.
• Mainnet deployment
• Front-end integration (Safe-App interface)

Funding Request:

Total Funding Request: 50k xDAI

Up-front:

30k xDAI up-front payment for development, smart contract creation, and testing.

Post-completion:

• 10k xDAI upon successful deployment of Rehypothecation Adapter with CoW AMM as a first available trading function.
• 10k xDAI upon successful deployment of Concentrated Liquidity CoW trading function.

Budget Breakdown:

Budget Allocation: Smart contract development and testing

Gnosis Chain Address: 0xB4E906060EABc5F30299e8098B61e41496a7233c

Referral: We discussed this project with Felix Leupold @fleupold, who referred us to the grant program.