Generalized Uniswap V3 strategy

Summary

Build a framework for deploying strategies that earn yield by providing liquidity to any Uniswap V3 pool. Launch the initial implementation targeting the USDC-USDT 0.01% pool.

Background

When OUSD was launched in 2020, the initial strategies utilized money markets to earn interest from borrowers and farm rewards. Soon after, a Curve strategy was developed as the first one to earn trading fees from an AMM. We intended to someday launch similar strategies on top of Uniswap and Balancer, but there were no incentives offered on stablecoin pools and trading volumes were too low. Today, volumes and reported yields¹ on the USDC-USDT pool (at the 0.01% fee tier) are compelling enough to consider becoming a liquidity provider.

Overview

If approved, this proposal would signal to the Origin core team that there is interest in exploring an integration with Uniswap V3. Implementation of the strategy would be subject to further review of the feasibility of managing an LP position and an economic analysis of the strategy and its associated risks.

The strategy would involve depositing specific amounts of both USDC and USDT, specifying a price range for the two, and harvesting trading fees periodically. Unlike Uniswap V2, our position would not grow automatically, and profitability would depend, in part, on our ability to better manage our position relative to other LPs.

Pros

‣ Uniswap is arguably the most battle-tested, blue-chip protocol that we could integrate. It has been thoroughly audited²³ with nearly $3 billion in its V3 contracts alone and offers a bug bounty program. ‣ Much like our generalized Convex strategy, a generalized Uniswap strategy would allow us to deploy other implementations for different pools once we solve the first one. ‣ A strategy that only depends on earning trading fees from the leading AMM could prove to be more sustainable than other strategies that rely on reward token incentives. ‣ According to DeFiLlama, yields have repeatedly spiked well into a double-digit APY range over the past month. ‣ Concentrated liquidity offers us granular control over what price range we’re willing to accept for the two stablecoins involved. ‣ Despite Curve’s focus on stablecoins, Uniswap often generates higher volume with less capital in the pool.

Cons

‣ A vulnerability in Uniswap’s universal router was found earlier this month though no funds were lost.⁴ ‣ Being an LP in a V3 pool requires active management of the position to maximize returns and minimize risk. ‣ Concentrated liquidity amplifies impermanent loss. Compared to Curve’s 3pool, there’s a higher likelihood that all USDC deposited to our Uniswap V3 strategy would be converted into USDT. ‣ We would need to expand our off-chain monitoring to track prices of USDC and USDT, trading volume, and our position relative to other LPs with differing price ranges.

Reference

¹ https://defillama.com/yields/pool/e737d721-f45c-40f0-9793-9f56261862b9

² https://github.com/Uniswap/v3-core/blob/main/audits/tob/audit.pdf

³ https://github.com/Uniswap/v3-core/blob/main/audits/abdk/audit.pdf

⁴ https://twitter.com/dedaub/status/1610058814094450694