Total Volume + Fees
Welcome once again to our fish-tastic weekly roundup of LP news and the latest happenings in the Uniswap ecosystem. As we delve into another Friday analysis, our aim remains to deliver invaluable insights for those navigating the DeFi/LP waters.
Reply/Comment to this with your thoughts and critiques. We always appreciate feedback!
Uniswap now has nearly a Million LP positions! Check out the Dune Query here
Continuing the trend from last week, the crypto market is on the rise, fueling talks of an emerging 'pre-bull' market. This surge is especially pertinent for those immersed in the DeFi domain, as we witness the ongoing evolution of innovative protocols.
Some of the winners this week were:
WETH/LINK
A massive cumulative $639,119.76 in the last 7 days.
LINK has stood as an outlier among all other pools.
Staking protocols
LDO and RPL experienced a surge in price in their respective pools after ETH crossed the $2000 mark.
WETH/LDO: A total of 1,820 transactions with fees reaching ~$150,000.
WETH/RLB: 6,488 transactions, with fees amounting to ~$140,000
Check out our curated list of pools to LP in at the end!
Uniswap Hooks for Perps
In an effort to diversify how people LP in Uniswap, a new Hook was developed by hook-finance to enable LPs to trade perps (which are just cousins of futures and come without an expiry).
This is meant to be used for traders looking for leverage and LPs looking to receive margin fees from swappers, which are added to their profits. This provides an incentive for LPs to provide liquidity to the platform.
The more active the trading (which perpetual contracts can stimulate), the greater the potential fee revenue for LPs.
The availability of advanced trading options like perpetual contracts can attract more traders and investors to the platform.
The hook also manages margin requirements and liquidation protocols. If a trader's position moves against them and their collateral value falls below a certain threshold, the system can automatically liquidate their position to cover the borrowed amount.
Similar to this hook, there are new protocols launching on top of the Uniswap ecosystem that takes the concepts of using leverage from liquidity and then introduces expiry less call and put option. One of these innovative protocols is Panoptic👇🏼
Options as LP with Panoptic
Until recently, LPing has been limited to the swapper/LP relationship in a two sided marketplace. In our newsletters, we have outlined some other protocols gaining traction like Infinity Pools.
Now it's time to take a look at Panoptic and its aim to take over TradFi by offering options trading while making LPs more profitable and at the same time tackling the problem of Impermanent Loss.
Panoptic is hedging it's bets on the notion that as Defi becomes more prevalent, TradFi traders will welcome the permissionless nature of Uniswap, public access of data and the fact that multiple Defi protocols could be connected to provide a seamless interface where the beneficiaries are the LPs rather than exchange owners.
For Option traders:
Perpetual Options:
Panoptic offers options called Panoptions that don't expire.
You can choose when to use them without worrying about a deadline.
Flexible Trading:
This fits the always-open crypto markets, letting you make moves anytime.
No pressure from ticking clocks that make options lose value as deadlines approach.
Decentralized and Open:
Trades happen on Uniswap v3, a decentralized platform, ensuring transparency.
Unlike traditional markets, there's no central control, offering freedom and round-the-clock trading.
Optimizing a protocol for passive yield seekers might be the biggest miscalculation in DeFi, especially in this high interest rate environment.
IMO, the only way to go from ~4% staking rates to >50% APY is through options — lending/perp/LST protocols simply won’t get you there.
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For LPs:
For LPs, Panoptic intends to add an extra layer of fees generated from the options traders borrowing from the LPs. This is on top of the fees that LPs usually earn.
LPs want the optimal return on investment for their liquidity. LPing is not risk free. Impermanent loss can eat away at your PnL, and concentrated liquidity requires manual adjustments. For passive LPs only concerned with yield, this requires an immense amount of knowledge of AMMs, tooling, and trial and error before they get the hang of it.
Furthermore, LPs may not be as profitable anymore for various reasons, including an oversupply of liquidity on Uniswap. Why not put that oversupply to good use with other protocols built on top of Uniswap.
Panoptic makes LPing much easier and in theory more profitable.
Simplicity: Panoptic offers a streamlined process for liquidity providers. Unlike Uniswap's model, which often requires depositing a pair of tokens, Panoptic enables single-sided liquidity provision.
This means you can contribute using just one type of token, which simplifies the process and makes it more accessible.
Protection Against IL: With Panoptic, liquidity providers don't face impermanent loss (IL), a common risk in traditional liquidity provision where price shifts can affect your investment.
Panoptic's model ensures that the quantity of tokens you provide stays constant, as traders borrowing your liquidity must return the exact amount.
Enhanced Earnings: Panoptic's integration with Uniswap v3 allows liquidity providers to benefit from the platform's options trading volume. When options are traded, PLPs earn commission fees, linking their earnings directly to the trading activity.
This can potentially result in higher yields compared to traditional liquidity provision.
Flexibility: Panoptic is designed to work on top of Uniswap v3, meaning PLPs can provide liquidity for any ERC-20 token.
Risk and Liquidity Management: You can select the width of your liquidity provision, rebalance your position cheaply through Panoptic's own rolling mechanism and monitor your LP metrics including implied volatility.
Top Pools of the Week
In a pre-bull market, we seem to have a lot of well performing pools.
Here are our best picks. Follow the URL and get an in-depth analysis on Poolfish.
High-Risk
VITA/ETH in the exotic pairs category for the ones feeling adventurous.
Low-Risk
ETH/RPL for the balanced swimmers.
Safe
ETH/USDT in the 5bps category for the cautious paddlers.
We hope that we were able to sufficiently convince you that Defi is much more interesting than TradFi. The future of Liquidity Providing looks very promising especially with permissionless protocols like Uniswap.
The nature of providing concentrated liquidity opens up a sea of avenues where the beneficiaries are not just exchanges but a peer-to-peer network where liquidity can be used by any service. At least, that's the vision. We are on the lookout for protocols like Panoptic and other Uniswap Hooks that are making this a reality.
Until the next LP Friday, see you then!
