A peer 2 peer approach to increase price stability and to reduce price manipulation by exploiting non-fundamentals-based volatility while leveraging and optimizing Uniswap V3.
This shall empower the algo- trading community to benefit from non-fundamentals-based volatility and from trading volume itself (earning LP Fees) at the same time.
The CeFi system is not as fair as it should be and the DeFi system is not as efficient as it could be
- A high percentage of the average volatility is induced by manipulation - not fundamentals
- Manual and individual trading does not add much value to society, nature, culture and the well-being of individuals
- So called "retail traders" loose money to those who have the power to manipulate markets in classical trading infrastructures
- Introducing "flexible concentrated capital" is economically more reasonable now due to layer 2 scaling solutions like Arbitrum
- Volatility Farming at scale has the potential to increase price stability by exploiting non-fundamentals based volatility
- VoFarm Pools bring the algo- trading community (currently using hummingbot, coinrule, ...) to a new level
- It is a good idea to increase freedom for individuals as more than 51 % of individuals are fair and reasonable people
Each VoFarm Capital Pool is defined as a smart contract which also defines a VoFarm strategy.
Each specific VoFarm Pool Smart Contract inherits from the VFPool template "is VFPool" ....
The only function which shall be implemented specifically is getCurrentInvestmentAdvice().
An investment advice can e.g. recommend to:
- Execute a Single Swap
- Increase or Decrease Liquidity
- Hedge against price change risk as Liquidity Provider - for volatile assets e.g. in 0.3 % fee tier
The following example implementation optimizes capital efficiencies around ETH/DAI by basically applying the following moves:
- If ETH price is about to trade sideways --> be an all in 50/50 ETH/DAI Liquidity Provider
- If ETH price is about to rise quickly and significantly --> be an ETH Holder (helping users to avoid "impermanent loss")
- If ETH price is about to drop quickly and significantly --> be a DAI Holder (preparing to buy back into the game at the right time)
The risk of price changes (aka risk for "impernanent loss" (which might be better called "opportunity cost")) is something which currently prevents many liquidity providers from "going all in" to their specific range. An unopinionated hedge mechanism can neutralize this risk. Its assumption is that it does not know if prices go up or down but that prices go up AND down frequently - compare basic Roulette Martingale Strategy.
The following example implementation leverages the Uniswap V3 Fee Calculator to apply "flexible concentrated capital" optimization:
tbd
People can check the VoFarm Strategy Explorer to learn about each strategy and its historic capital efficiency to decide into which pool / strategy they want to invest.
People can invest an arbitrary amount of Ether to the pool / strategy of their choice and receive a reward depending on the success of the pool which they have chosen proportional to the amount of Ether which they have invested.
The wallet which deployed the smart contract defining the specific vf pool + strategy, earns a percentage (defined in the smart contract) of the pool's gains to reward the developer who deployed the corresponding smart contract. This also incentivices developers to come up with better and better strategies etc.
To keep things safe and simple the strategy of a specific pool can never be changed. To bet on a different strategy one can move one's capital from one pool to another - ... thanks to layer 2 scaling (e.g. via Arbitrum).
The incentives shall be aligned along decentralization, fairness, simple market access, transparency, ever improving capital efficiencies and wise investments for public goods.
The volatility farming project requires for successful strategies. Therefore the optimization of vf strategies is a long term endeavour to which the whole open source community is invited.
In order to support developers in coming up with many different successful strategies (which is good for the overall stability), we want to provide features like:
- Templates for Price Risk Insurance (unopinionated Hedges) for LP focused strategies
- Implement an appropriate UI (option 1: similar to LP - option2: standalone)
- Simulation mode / back testing - leveraging e.g. the Uniswap V3 Fee Calculator
- simplified connection to oracles which reveal fundamentals at early stages
- automated security audits for new pools / strategies before we list them in our VoFarm Strategy Explorer
- optimize the incentive structure to encourage the exploration of new technologies which can not only serve financial improvements but also ecological and cultural improvements (incl. gitcoin collaboration)
It would be cool, if we could contribute to making Uniswap the “One-Stop-Shop Solution” when it comes to optimizing capital efficiencies & risk-/ reward ratios.
Michael (Lead Developer & Domain Expert)
Bastian (Projektkoordinator)
Daniel (Designer & Domain Expert)
Roman (Designer & Domain Expert)
Sohil (Domain Expert)
Felix (Developer)
Frederic (Developer)
Nikita (Developer)
Niko Lockenvitz (Developer)
We continue developing the solution without direct rewards or grants. If we would receive any grants for this project, we would invest it into dedicated, wisely chosen VoFarm Pools - just like the users of the VoFarm would do. We think this is a good signal - encouraging users to try it out - as we as the development team believe in the success of the VoFarm. We would only withdraw gains which where generated out of those grants as a reward for our work. We are currently figuring out how this can be ensured algorithmically via the corresponding VFPool smart contract.
For many developers it is clear that Deno is the successor of NodeJS. We support preparing Deno for Web3 - see:
*Griffin, John M. and Shams, Amin, Is Bitcoin Really Un-Tethered?
(October 28, 2019). Available at SSRN: https://ssrn.com/abstract=3195066 or http://dx.doi.org/10.2139/ssrn.3195066
*Cryptocurrency Manipulation:
Weili Chen; Jun Wu; Zibin Zheng; Chuan Chen; Yuren Zhou (May 2, 2019). IEEE INFOCOM 2019 - IEEE Conference on Computer Communications.
NeilGandal, JTHamrick, TylerMoore, TaliOberman (May, 2018). Price manipulation in the Bitcoin ecosystem, Journal of Monetary Economics - ELSEVIER.
Leonardo Nizzoli, Serena Tardelli, Marco Avvenuti, Stefano Cresci (June 18, 2020). Charting the Landscape of Online Cryptocurrency Manipulation. Publisher: IEEE