Overview

4. The Challenges on Uniswap V3

The most significant improvement of Uniswap V3 is its ability to gather liquidity in a specified range, and in this way, it can generate earnings several times more than V2. Although it produces high yields, it also causes many challenges to LPs:

Challenge 1：High risk

While centralized liquidity can enlarge the income by increasing the capital efficiency, it also amplifies the impact of impermanent loss, especially when the price is out of range. Once it happens, the impermanent loss may continue to increase while the income goes to zero.

Challenge 2: High cost

To ensure the sustainability and stability of income, rebalancing and reinvesting are necessary, but they both require users to pay high Gas fees. For ordinary users, the gas fee will blow away all the fee income carelessly.

Challenge 3: Rebalancing

How to dynamically set the optimal price range to earn the optimal fee income? When the price deviates, it may face the risk of abnormality if it is not balanced, and it may also face the risk of loss of net value after the price returns. The timing and parameters of rebalancing are two complex quantitative matters.

Challenge 4: Reinvestment

Compared with automatic reinvestment on V2, V3 requires manual reinvestment of the fee income. How to resume investment continuously and stably? How much influence does the gas fee of reinvestment have on the returns? These problems are extremely challenging for most LPs.

Challenge 5: Hedging

Uniswap LP needs to provide dual currency investment (e.g., ETH-USDC). How do U-based users with low-risk preferences offset the price fluctuation of risky assets (such as ETH)? Furthermore, how to hedge the risk of LPs' impermanence loss?

5. Who do we serve?

Universe serves different types of users in the Uniswap ecosystem.

Risk-averse users

Example 1: U-based users or arbitrageurs with the lower risk appetite

Need: cutting-edge hedging strategies and tools that allow users to earn low-risk arbitrage returns.

Challenge: lack of efficient LP hedging strategies and useful LP hedging tools.

Example 2: High-net-worth users and institutions

Need: fund security+secured smart contracts.

Challenge: smart contracts are between Scylla and Charybdis at the moment.

Risk-neutral user

Example: currency-based users or ordinary liquidity miners.

Need: looking for higher and more stable LP income

Challenge: currently, the income of mining is comparatively low and unstable.

Risk-seeking user

Example: transactional users with higher risk preference.

Need: looking for high-risk and high-yield trading opportunities and earn stable mining income

Challenge: lack of appropriate products in the market that can earn mining and trading income at the same time

6. Our approaches to the Challenges

Universe solves these problems and meets the needs through a series of combinable products.

6.1 Universe backtesting Platform

Universe Backtesting is the first LP revenue backtesting system on Uniswap V3 with accurate on-chain data, granularity of block-level backtesting, flexible self-defined parameters, and robust strategy analysis indicators. It can help users understand the benefits and the risks of Uniswap V3 LP easier and customize the LP strategies.

6.2 Universe Active LP Management Quantitative Strategy

The active LP management quantitative strategies solve many problems on Uniswap V3 LP: high risk, high cost, rebalancing problem, extreme market situations, high loss value, etc.

Based on the underlying principle of Uniswap V3, we established a multifactor quantitative financial model. We finally created a strategy model with stable income through a large amount of data backtesting and optimizing. According to the backtesting data in the previous two months, the annualized earning of fee APY of the smart vault reaches 150%+. The net annualized income is up to 50%~70%. These two items are outperforming all revenue products on the market.

6.3 Universe Smart Vault

Target users: currency-based users or ordinary LP users (risk-neutral users)

Product Description: A specific intelligent quantitative strategy supports each smart vault. Under the instruction of the strategy signal, the strategy contract dynamically rebalances the liquidity position of LPs, and helps users earn fee income.