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.
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.
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.
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.
Last modified 25d ago