# Challenges and Solution

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Alpha Vault is the only solution that can capture Uniswap V3’s Capital Efficiency in a decentralized manner, without sacrificing security, user convenience and LP Returns.
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<summary>The Challenges</summary>

Uniswap V3 provides better liquidity and higher Fee Income, but presents many challenges:

To achieve better liquidity:

* Liquidity Managers will have to choose a new range whenever the price moves.
* Liquidity Managers risk having no liquidity if tokens trading Out of Range.
* Liquidity Providers have substantially higher risk of capital loss.

To incentivise liquidity provision:

* Uniswap V3 positions cannot be used because they are not ERC-20.
* Directly incentivising a Uniswap V3 pool risks economic exploits such as [narrow-range](https://medium.com/@revert_finance/onetickdao-eth-and-the-narrow-rangers-f9a376f7f0c9) LP Strategies.

</details>

<details>

<summary>What projects are doing now</summary>

Liquidity Management can be delegated to an active Liquidity Manager, but this introduces new challenges:

* It is difficult to diagnose problems (eg large LP losses, low Fee Income, low Capital Efficiency, security incidences) because active Liquidity Managers do not open-source their LP Strategy.
* The performance cannot be independently verified, because the underlying data is not on-chain.
* It is not possible to decentralize, because project DAOs have no visibility on how the liquidity is being managed.
* There is less choice and flexibility, because the number of vaults that can be managed is limited by the resources of the active Liquidity Manager.
* Protocol fees are likely to be higher due to higher overheads.

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<details>

<summary>The Solution</summary>

Alpha Vaults solves the above by building:

* A permisison-less platform where anyone can create their own LP Vaults.
* The easiest-to-use front-end to provide and manage liquidity.

And by testing:

* Its LP strategy over many years on Mainnet, to ensure it can deliver excellent LP Returns and high Capital Efficiency.
* Its infrastructure over many years on Mainnet, so that it is secure and reliable.

And by ensuring all vaults:

* Are operated on-chain and verifiable by anyone.
* Have fully transparent performance metrics using on-chain data.
* Can be fully controlled by a DAO using an on-chain governance framework.
* Have low protocol fees.
* Are ECR-20 compliant so that they can be incentivised using familiar tools.

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