Challenges and Solution
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.
The Challenges
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 LP Strategies.
What projects are doing now
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.
The Solution
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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