Will AQUA work with Uniswap v3?
Aside from concentrated liquidity one of the main differences is that instead of getting a UNI token that represents your LP stake you get and NFT.
Will it be possible to stake that NFT to get that extra 10% for AQUA? What will the concentrated liquidity mean for the tokens we keep in the aqua index pool, if they are concentrated to a certain value?
We know that as the price moves out of the given range the LP provider will have all their money turned into the less valuable asset. That means that in the index AQUA pool if the money moves out of the given range to will be filled with “less valuable assets”.
I know that we are already in progress of working on AQUA but we should think about whether it will be compatible. I don’t know how many people will jump immediately from uniswap v2 to uniswap v3 but we don’t want to miss the boat.
Is it possible to upgrade AQUA to work with uniswap 3? Will we create two versions of AQUA one for v2 one for v3?
If it was possible to upgrade it to work with v3 do we want to delay launch until v3 is out?
Will AQUA work with Uniswap v3?
As far as I understand UNI V3, the LP rewards will not be part of the LP NFT. Instead I assume they somehow get into your wallet separately, maybe through a claiming process. So Aqua can conceptionally still work and would look like this:
- Investor becomes LP at UNI V3, gets NFT
- Stakes NFT in Aqua
- Aqua collects the LP rewards
- Investor unstakes the NFT, gets NFT + Aqua tokens in amount that matches the LP reward value + 10?%
The Aqua protocol ends up with normal ERC20 tokens.
Now, what to do with these tokens?
Aqua needs to somehow generate returns on top of these ERC20 tokens, else there is no incentive to hold/buy Aqua tokens. But we have full flexibility.
Now we´re back full circle to the SWAT analysis done earlier this year.
PS: UNI V3 is an absolute game changer. It´s a bomb. Don´t underestimate the migration when it´s ready.
So we just need to figure out how to allow users to stake an NFT instead of a token.
I watched a video by denome and he didn’t seem all that excited (except for stablecoins pols, for those it’s awesome). So I am also curious about how fast will people migrate and whether they will use the concentrated liquidity after migration as theoretically you could just spread your money over the whole price range and get the same effect as v2.
I am also curious about the NFT part. Will this make it significantly more difficult for newbies as they need to learn about NFts?
Personally I think people will migrate when Optimism is launched / stable, as that’s when the volume will move over due to fees etc.
Going off Dash’s recent vid about this topic, it got me thinking:
Why not support both? Why one or the other (Liquidity-NFT vs LP tokens)?
Probably more dev to handle different types of liquidity protocols, but I think it would be best to put in the extra time to support both types (L-NFT + standard LP tokens). That way, it could handle UniSwap-v2, plus all the others already “advertised”, and handle UniSwap-v3, plus any others who follow suit with the L-NFT model.
In principle I agree but the focus should be on V3 still. Just recently I came across a token that is actually doing what Aqua wants to do on the current V2 (DRC). If we focus on V3 and are ready to go when they launch or soon after, Aqua has a first mover advantage. V2 support could be added later to cater for a wider audience. But V3 will be a liquidity blackhole so that´s important to cover.
I don´t know his reasons but I can tell you why in my view it´s a game changer:
- You can replicate anything you do on V2 - no disadvantage of migration
- Concentrated liquidity in a tight range entirely above or below the market price allows you to simulate on-chain limit orders. Huge!
- Multiple, layered concentrated liquidity ranges allow you to construct any arbitrary trading strategy - like a complex exit strategy - that generates trading fees on top. Because of the significantly increased capital efficiency, these trading fees will be considerable.
- V3 will eat the lunch of stable pair exchanges like Curve because of increased capital efficiency.
- Because of licencing they have a moat for 2 years. Enough time to carve their market leadership in stone.
- Having LP tokens as NFTs suddenly gives Uniswap this NFT-hype marketing touch. Silly, I know but we´re in crypto…
- Having the fees not automatically being reinvested makes it easier for rent-seekers to manage their investments and calculate discounted cashflow models. This opens up a solid valuation method for the LP NFTs, creating a yield market. I can already imagine protocolls building on top of this for further financial engineering. This includes derivatives on yield curves etc. Essentially, they could be the catalyst for another multi billion dollar market in the short term.
V2 support (standard LP tokens) is already implemented, so wouldn’t need to change anything there, but just additional support for V3 L–NFTs.
Well said, I agree with all these points, my thoughts exactly. I think its best to evolve with the space and work with V3 first.
Those are all great points. Now I am getting excited about Uniswap v3 again
Do you have any thoughts on how the concentrated liquidity could be used to influence price? The way I am thinking about this is as follows:
Let’s look at XIO and flash. XIO has huge liquidity and so even if a lot of people buy the price doesn’t change much so the price is fairly stable. Flash on the hand has tiny liquidity so it moves up and down a lot.
If we ignore the dapp (I know it’s a big if but stay with me) all of the liquidity for flash is provided by the team on Uniswap. Now imagine the team (they won’t and they are awesome but it’s good for the example) would use concentrated liquidity in range of 1000-2000 flash per eth. Essentially it would make it impossible for the price of flash to be moved outside of this range for two reasons:
- Because if flash went up to 1000 flash per eth there would be no more flash to buy.
This could be fixed by a new person noticing and adding liquidity form the range of 1-1000. But would this happen often in small cap coins? Also the price movement after reaching the threshold would be explosive as the liquidity would now be very low compared to the previous amount.
- Because the liquidity in the range would be so high (imagine something akin to what we have in XIO) people would have to buy incredible amounts in order to move the price.
I may be misunderstanding something but I feel like if you have a high percentage of some token it would be easy with concentrated liquidity to keep the price in a given range. Is that true?
I understand your train of thought but you forget one important detail. When you provide liquidity and the price moves up, you sell that token to strangers. They have the tokens then. So in your example, if the price at some point moves below the 1000 flash per ETH, the former market maker would not have any Flash left but only ETH. So he can influence the price only in one direction from there - through buying Flash.
The market will continue to price tokens according to supply and demand, so don´t worry about the role of V3.