MakerDAO Community Collateral Onboarding, 11 Aug 2022

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From YouTube: Collateral Onboarding Call #48 | Gamma Strategies UNIV3-WBTC-RENBTC MIP6 AMA

Description

MakerDAO Forum Post Link: https://forum.makerdao.com/t/collateral-onboarding-call-48-gamma-strategies-uni-v3-wbtc-renbtc-mip6-ama/17489

Application Summary
Gamma Strategies published a MIP6 application to enable DAI minting against the Uniswap v3 LP pair for wBTC-renBTC.

Gamma Strategies is an active liquidity manager on Uniswap v3 and creates an ERC-20 wrapper around its managed positions by interacting directly with the Uniswap v3 core contracts. This collateral type is an LP token representing user-deposited assets and the trading fees accrued from providing those assets on Uniswap v3.

For this call, we hosted:
Brian @BP33 from Gamma Strategies

Agenda
-🎙️Intro by @retro
- Presentation by Gamma Strategies
- Community Q&A

Application Excerpt [MIP6]: [UNI-V3-WBTC-RENBTC]
Asset Information
7. How is the asset used and does it give any rights to holders? (e.g. financial claims, dividends, governance rights)

The asset is used as a receipt token given for providing liquidity on Uniswap v3. It gives the holders financial rights to his or her portion of the underlying assets and fees returned from providing liquidity.

Gamma LP tokens are ERC-20 and are minted to users who deposit the base assets (WBTC & renBTC) of the LP pair into the position manager contract called the Hypervisor. The Gamma WBTC/renBTC LP token will be concentrated +/- 20 ticks from a renBTC / WBTC price of 1. (0.9980021 - 1.0020019). In ticks, this would be a lower tick of -20 to upper tick of +20.

Upon a 5% threshold amount of fees collected from the position, the position will automatically rebalance in the same lower and upper ticks. Given the rapid redemption available for both assets back into BTC, the price should not diverge much from parity.

8. What is the market cap for the asset?

The market cap for the WBTC-renBTC LP token would be a function of the marketcaps of WBTC and renBTC. As of August 11, 2022, the market cap of WBTC is 5.9B and the market cap of renBTC is $77.4M according to CoinGecko.

9. Where does exchange for the asset occur? 9.a Provide exchange data on market liquidity, volume and order book depth.

The Gamma WBTC/renBTC LP token can be redeemed for the underlying assets at any time.

10. Is the asset settled on chain (trustless) or off chain (trusted)?

The LP token is settled on chain (trustless)

12. List any possible oracle data sources for the proposed Collateral type

The same oracle that is used for wBTC and renBTC can be used, with the weights according to percentages in the Gamma position. These weights can change based on price movements.

A

Thanks retro and yeah, thank you to everyone who's joined here today. um My name is brian. I lead business development for gamma, which is an active liquidity manager on unit swap v3, and this is a collateral call for a proposal that we have currently on the maker dial forum for uni beat repair for wbtc, run vcc, and so, as mentioned before, we we're an active liquidity manager on unit squad.

A

V3 we've been live since pretty much when unit swap b3 went live back in may of last year and since that time we've been managing liquidity on behalf of retail peas, daos d5 projects and other institutions, and mainly what we do is we aim to solve three main pain points for lps on unit squad v3. uh The first is fungibility, um so not sure if you guys are aware, but every position on unit swap v3 is, is an erc 721 position or an nft.

A

That represents a certain range on um on unit swap v3, and so what we do is we create an erc20 wrapper around our unisquad v3 position. So anybody who deposits into our contracts will have a fightful lp position and that that is pretty much what makes our collateral um or our rrlp position able to be collateral on maker, dow or bonded on the witness pro or state in a masterchef contract.

A

So it's this functionality that that really unlocks um the lt positions for other use cases here, and the next point is like we just help determine ranges now this is, I would say, it's a little bit less relevant for the purposes of this call, because wbtc or mbtc is a one for one pegged asset. So the range in this case will be static, but you know, on behalf of other um other liquidity positions that are more volatile.

A

We help manage the ranges in different ranges and and according to our strategies determined by us and as well as our partnering protocols and lastly, which which is probably more relevant for maker dow. Is we automate rebalances liquidity positions are automatically rebalanced without the need for individual lps to compound fees and and the way that fees are earned in new swab v3, it's a little bit different than sushi or univ2.

A

Where, if you're earning fees in your position, they're, usually auto compounded back into your position, whereas on unib3, the fees are accrued outside of the position, which requires some amount of management to take those fees and and reinvest those fees back into the position, and- and we do that automatically which which I'll go into later and just as another note like, if you guys have any questions throughout this presentation, just feel free to um uh just ask a question and we'll we'll do this dynamically and you know we'll want to make this as dynamic as possible.

A

All right. So next, I'm going to just go over a very high level overview of how our contract works. uh Our main contract that we use is called the hypervisor contract. um This is uh analogous to what you know. A uniswap lp nft position is, with the only exception that it's an erc20 position, so how it works is pretty simple: uh we'll have a depositor deposit, both sides of the liquidity position so in in our case token, zero would be wbtc token.

A

One would be renbtc they deposit that in the ratio specified by the position into the hypervisor contract, which will deploy those assets to unit swap v3 and in exchange, the depositor will receive erc20 lp tokens and those erc20lp tokens are the subject of this call, which will be the db3 wpc, redbc liquidity position and the hypervisor withdraw. I think this is really relevant for how liquidations will be done, so the withdrawal or the liquidator will take the erc20 lp tokens and they're they'll, essentially redeem them for the base assets in the pair.

A

So token, 0 wbc token 1 run vtc, and this is a permissionless process. So no there's no kyc, no permissions needed. You just need to have the erc20 receipt tokens, redeem them and you'll get the base underlying receipt. The underlying tokens in return.

A

Now this uh hypervisor rebalance, so this diagram is, is, for the most part, we're going to be rebalancing. The positions within the exact same base position as before, because it's a one for one peg asset. But what's important to note here, is that we essentially are positions. We're managing two positions at any given time, which we'll call the base position and the limit position and I'll explain this a little bit more detail.

A

But essentially the base position contains both assets and then the limit position is a single uh single asset position and the reason why we do this is when we rebalance positions depending on where the current price is within the range uh you're going to have a different allocation of assets, and we don't swap to get into the correct allocation of assets.

A

Instead, we create a limit position to enter, to enter into the position and the whole purpose of that is for yield optimization, where, if you're swapping to get into the right allocation of assets, you incur both the swap fee and the price impact on the trade which, uh when we've done our analysis, that has a negative impact on profitability and yields over the long run. So just as as a review.

A

um So the collateral here would be the erc 20 position for wbtc ram bbc on uniswap in the 0.05 feature pool and the reason why we chose 0.05 feet here is it's the fee tier that has the most amount of liquidity currently in the pool and has also has the most volume.

A

uh There is a 0.01 feet here, but based on just a historical uh look at that position, it never really had too much liquidity. There were points in time where it did have liquid with some volume, but just wasn't consistent enough, whereas the 0.05 feet here seem to always have consistent liquidity and consistent volumes, and then the range that we are proposing um and that will eventually be hard-coded in our contracts, would be the 0.994 to 1.006 range.

A

It's a very tightly pegged range around around the price of one for one and the way to sort of think about. This is when the price is trading at the low end of the range at 0.994, you'll be 100 in rent btc and when the range or when the the current price is at the upper end at 0.1.006 you'll be 100 in wbc, and I think this is an important point because well, if you think about the the worst case scenario, here uh will be 100 in either asset.

A

If there's like a dpeg event, 0.98 or 1.1 we're going to be 100 in one of those two assets. So I think that's important to uh consider, especially when determining the risk parameters um of of what this position should be, which we'll talk more in perhaps at a later time. But I think we're uh probably going to have to go with what the risk parameters are for rent btc, because that tends to have the higher collateralization ratio. That's currently on maker dao, and it's important to also note that rent, btc and wbtc are also approved.

A

Both of them are approved collateral types on on maker dow. So you know in the case that you know we're 100 percent of ram, btc or 100 percent in wbtc.

A

um uh Both both of those assets are are considered, approved, collateral and again, our positions are our erc20 and yeah. So I want to go a little bit more into the strategy now, and this is going to be different than um other active liquidity managers on univ3 that you may have seen, namely, I would say, g-uni gelato or you know, I think they recently rebranded as arrakis finance. The way they do rebalances is quite different from the way we do rebalances.

A

As mentioned before, we maintain two positions at any given time where we have a base position and a limit position, whereas g uni they would swap um they would swap the assets to get into the right position and the reason why you would need to swap or create a limit position is, let's say, we're providing in this range of 0.994 to 1.006.

A

The current price is exactly one then you're approximately going to have a 50 50 run btc wbtc position. But let's say the current price goes up to closer to the upper end where it goes to, let's say 1.003, then you're going to be. You know more weighted towards wbtc, rather than run btc, possibly in a you know, you'll be 75 in wbtc and 25 in ren btc, and the issue with that is when you're rebalancing or compounding fees back into your position.

A

The fees that you earned are not necessarily going to be in that 75 25 allocation. um So what what so? What g uni would do? Would they would swap the assets to get into the 75 25 allocation and then add that to your current position, what we would do is we would have as many assets possible in the base position and to the extent there's excess of one asset over the other.

A

It will get placed in a single sided limit position and that helps to and the reason why we do that, as mentioned earlier, is mainly for yield, optimization to save on the swap fees and to save on the price impact on the trade and the posit, and the position will be reinvesting, earned fees into the same base range or it will be rebalancing both positions um at least once daily and and I'll go into that a little bit more more detail on the next slide here, where I'll cover the main contract functions and how those functions are are executed.

A

So our main contract. Here, it's important to note that all admin functions will be removed by the time we go to on chain vote. But the two main functions that we have are the compound function and the rebalance function now compound. What this will do is it's going to reinvest earned fees. So, as I mentioned earlier, the fees are not auto compounded. The fees are accrued outside the position.

A

So what a compound function will do is it will reinvest the earned fees back into the base position now, as mentioned earlier, the base position is going to specify a certain allocation of assets and, for the most part, a compound function will will get most of those fees and place them into the base position for the most part.

A

But if, in the case that they're they're unable to be placed into the base position, well, let's say only 50 of the fees or or 60 of the fees, and you still have a decent amount of fees that that are unable to be placed in the base position due to not being in the right allocation.

A

We're going to call a rebalance function, which is: will it's going to place as many assets as possible into the base position and, to the extent that there's any assets left it'll be placed in a single-sided limit position to enter when needed, and uh the rebalance ranges are hard-coded based on what we determine to be our base position, which is 0.994 to 1.006?

A

That's full! It's going to be fully deterministic and algorithmic. um You know right now for our other pairs that we're managing. um It is a bit of a trust setup where we have an admin controller contract that will that their only purpose is to determine the ranges and that helps to make things a lot more flexible.

A

But for the purposes of maker dow that that admin ability to determine the ranges will be gone and it would only be able to deposit into that range of 0.994 and 1.006 and how we execute these rebalances is through open, zeppelin, defender and and a proper analog would be like gelatobots that that g-uni uses. So this is a bit of a trusted setup, but it's limited only to execute the compound and rebalance functions and the reason why we don't allow this to be publicly callable.

A

Both of these is there is, you know, potentially front-running opportunities that can be done if we allow the public to compound and rebalance these positions.

A

For example, if there's you know a material amount of accrued fees that have that have been accrued and, let's say, there's a significant delta between the uniswap pool price and mostly the current pool price or on a centralized exchange.

A

Then what somebody can do is they can you know compound the earned fees back into position, increase the amount of liquidity, lower price impact for their trade and and do an arbitrage transaction which it's not going to be too detrimental, but we kind of want to limit any sort of you know front running or funny business as much as possible, so we'll use open, zeppelin defender, which will execute compounds and rebalances.

A

You know frequently but unpredictably to to avoid front running and it currently it's the same thing that gelato is currently doing with their gelato box, but the only exception is we're using opensupplier defender and and we're calling our contract functions of compounded, rebalance.

A

So in terms of liquidity and how liquidations will take place, you know, as mentioned earlier on that one diagram I showed in how you withdraw our lp tokens. Essentially, you would redeem our erc 20 lp tokens for the underlying wbtc and run btc, and this can be done at any time. Permissionlessly and the liquidity pools available are on unisquad v3 there's. You know over 267 million of wbtp liquidity pools that you can um liquidate the wbtc in on curve.

A

There's you know: 47 million in renbc wbtp and 42 million in the sbtc wbc ram btc pool. uh Additionally, you can redeem, run btc for native btc using the rennbridge, and it takes approximately 30 ethereum blocks to do so, um and there's also a lot of centralized exchanges that have wbtc where you can.

A

I think coinbase, fcx and binance all have you know wbps, where you can liquidate wbtc for east with quite low price impact, so the oracles that we would suggest um would be the same oracles that that we use currently for for wbcc and run btc.

A

um What's important to note, is you know the allocation of assets of wbtc and renbctc in our lp positions? They can be pulled at any time on chain, they're, they're, perfectly readable, and you know we can also use the unit swap v3 t-wap oracle for for for as the oracle as well. Although you know there have been some trepidation to using those, so we can either use you know the unison, v3 t-waf oracle or we could use the individual oracles that we're currently using for wbtc and remdtc to perform liquidation.

A

And yeah so I'll just go over these. These brief points um so, as mentioned before, we we've been on mainnet since 2021, when we've been actively managing uh unit squad v3 pair since 2021.

A

We're currently live on all networks that unit swap is on includes mainnet, arbitrum, optimism, uh cello and polygon, and our our pools are completely non-custodial and our contracts are non-upgradable and by the time you know this goes to on-chain vote. There will be no admin keys uh for this. For this specific contract, um our lp tokens are composable erc20s uh analogous to univ2 tokens, but the only difference being that the the position will not necessarily be a 5050 position like a univ2 position.

A

It could be as much as 100 run btc or 100 wbtc, but for the most part, um this pair has been fairly well pegged and has stayed within the range of of you know. 0.994 to 1.006 and and really our strategies are, are mainly geared towards optimizing yields via that dual position, strategy that I mentioned earlier with the base and the limit position. We try to avoid swap fees if possible, because that really um digs into your profit margins when you're, when you're incurring those swap fees and price impact on on each on each rebalance.

A

And lastly, what's important to note here: is we've been audited multiple times with our last audit being a very intensive uh four week audit by consensus, diligence back uh in march 28th of this year, and that's currently the contract that we're currently running and we.

B

A

Two other audits, as well by arbitrary execution and and amnesia which occurred um prior to that, and so so.

A

Lastly, you know what what are the benefits of the wbtc run btc position on maker dow, um I would say that revenue generating collateral is pretty sought after um and it can drive further tvl to maker dow because of the fact that you can have your collateral is essentially generating yield for you and what's a very popular strategy, and I've been talking with various institutions is there's a delta, neutral strategy that can be performed here, where you have a large institutional player who wants to have earned delta neutral yields on wbc or nbc, they can essentially provide.

A

You know x, amount into this position, leveraged with leverage yields and and manage their collateral and essentially short, that same exposure to btc on some sort of perpetuals or futures exchange, where essentially so long as the yields that you're earning on this position outweigh the the the borrowing costs on the position. You'll be you'll, be earning delta, neutral yields.

A

So that's an I would. I would foresee that be very popular and potentially increase um the amount of dye that's generated from this collateral, uh there's also a flywheel effect. I think a lot of people don't know this, and I think rama brought this up uh in a response to to my proposal on the forum, but essentially having more liquidity in this pool will, for the meantime, it'll increase the apy uh generated by this, the univ position, and the reason for that is currently.

A

If you go on a dex aggregator today and you look at the trade, how a trade is routed from wpc to run btc most of that trade, approximately 75 percent of that trade is routed through curve rather than univ3, and that's mainly because of price impact. uh These desk aggregators will route trades to where the price impact is going to be the lowest and the more liquidity.

A

That's that's attracted to the wbt remedies equal on unison, v3. The more organic volume will will accrue to that pool. So until we reach an inflection point that you're we're going to have a flywheel effect of of increasing yields with the more liquidity. That's that's! That's added to our pools and in on our third point I think this really increases the diversity of assets. uh Backing die.

A

You know currently, 50 of of dye is backed by usbc and 19 is, by the die usbc pair six and a half percent by usdp and and just really only 4.3 by wbtc.

A

um I think the risks here that you know there's always centralization risk with with wbtc, um where it's it's being custodied by so how wptc works. If you're not familiar is users would custody their btc with bitco, which is centralized agency, and then they would receive wbtc, which is erc20, um but one one thing: that's maybe less risky about wbtc versus usdc or usdt. For that matter, is there there isn't a blacklist function on wptc, so it can't necessarily be frozen, but you know, I would say, that's only a few degrees safer.

A

There's always the possibility that um bitco or the centralized agency could refuse to redeem. um The wbtc is connected with like a tornado, wallet or or some sort of sanctioned wallet.

A

Ren btc, I would say, is slightly more decentralized than ren than wptc is, but the way ren dtc works is it's uh it's. The one thing, though, is it's permissionless like when you want to redeem, run btc for wbtc that or I'm sorry run btc for native btc. That process is permissionless, but the nodes, it's controlled by a series of dark nodes for and those dark nodes are currently, I think, mainly controlled by the team, but they do have plans to fully decentralize that process by the end of the year.

A

um I I think in recent history that some members of the maker down community have pointed out as well is that there was a there were quite a few um articles written recently that renbtc was being used as sort of like a mixed mixer. uh You know a tinted tornado cache, but really the renbc. The renbridge is is nothing like tornado cache in that each transaction is traceable, where you can see exactly who the sender is and exactly who the recipient is, whereas on tornado cache, you can't.

A

um I think that I think that article was overblown, but you know I could understand the sentiments of the community right now. Sometimes it's not about you know what what actually is the case, but you know how much but based on how much press it's getting and we're not exactly sure. If you know regulators are going to be paying attention to. Okay is it? Is it truly traceable? Is it not? I think they may be.

A

It's really sort of a unclear picture right now, but the fact of the matter is like ren like ren the renviem and the ren bridge is not a mixer and it's fully fully transparent. You know who's sending it and who's receiving it. um So the last point here is the the gamma lp tokens or our erc20 lp tokens are fully permissionless and you know they're unable to be frozen by another entity, um but that isn't to say that um well, it is like both renbc and wbtc.

A

Don't have blacklist functions within them, so you know they they would be less risk than than I would say usdc, um but of course, who knows how regulations will come down but for the fact that matters as of right now, they're they're, they're, a few degrees, less less risky and less centralized than than you know, usdc and usdt.

A

So at this point you know I'm happy to take any questions from the community. um You know uh any anything with regards to our collateral or regulations or anything like that happy to answer those.

B

Yeah, thank you for the presentation, brian as a reminder, feel free to drop the questions in the chat or use the q a feature on the right hand, side of crowdcast, while we're waiting for some audience questions to trickle in. uh I just wanted to touch on the comment you made about the contract being deterministic and how it's a better application for maker dow are. You is gamma strategies currently deploying any other deterministically managed uh contracts today,.

A

uh No, this is specifically for for maker, dao and, and the reason for that is, we wanted just absolutely no um just admin functions or over the the the the management of the ranges. I mean that option is still on the table for maker dow, where we can manage the ranges like. Let's say, if, if you know 0.996 the 1.004 is too tight or too narrow, we can.

A

um We do have the ability to manage it uh narrower or wider, and that's currently what we're doing for the liquidity that we're managing on behalf of other projects. But you know for the purposes of maker dow we we felt that it was prudent to have the the least number of admin. Functionality is possible um and that's the contract that we'll be sharing with. You know um the due diligence team once we you know if we, if we were to get greenlit by the community.

B

Got it that makes sense? um It looks like we have paper imperium, uh asking us to uh walk through an example of a liquidation, uh new apologies if he uh missed that initially.

A

Oh yeah sure so the liquidation is how it looks like so the we have an erc20 lp token that represents the univ3 position of wbtc and ram vtc on univ3.

A

So they can just essentially redeem that lp token for their pro rata share of the assets that are being deployed on unita v3, and it's going to be in some form of wbc and rembc, based on whatever allocation those assets are in currently and then it would be a matter of liquidating those the wbtc and ram b2c once they receive those assets. So it would be akin to um liquidating you know a wbt position or run btc position um and a specific debt ceiling that is needed.

A

uh The tv on gamma is quite low yeah, so the the debt ceiling that we were suggesting, I think the debt ceiling for run btc, is around 10 million uh the debt ceiling for wbtc.

A

I think I think, there's a range of there's somewhere like 500 million, and we think the right amount here is around 30 million um as as a debt ceiling and really that the tvl would it you would, it would be the the tbl to look at here would be the tvl. That's currently within the unit swap v3 pool, um there's currently around 10 million of like 910 million of athletes within the univ3 pool.

A

But you know we can start off with a lower debt ceiling and increase that as a function of what the total pbl in the units while v3 pool is, um but I I would imagine that the tvl would increase quite precipitously if we were to allow this as uh as collateral as as yield bearing assets are, are very popular and in my discussions with other institutions, you know they're they're, very interested in having uh wbtc and then btc as a pair, um and so your next question yeah the redemption is, is uh permissionless.

A

um There's a keeper needs to be whitelisted with us ahead of time, um and I keep when you say keeper, I'm assuming this is the the liquidator uh boss for our or the keepers that are running liquidations for maker dial. um That's a good question. Let me I'll have to bounce that off our cto, but my guess is yes, they would need to be y listed, but I will don't hold my word.

A

Let me double check on that and get you an exact answer. But in terms of your first question the redemption is permission, listen and can occur at any time.

B

A paper, if you have any other follow-up questions, please uh feel free to drop them in the chat. um The the last question that I would have for you uh released onboarding the asset um as part of the mipsex process. You mentioned that the existing oracles would be able to be leveraged for um the the collateral that you're proposing. Do you see any other implementation uh challenges or benefits?

B

I know that it was mentioned in the forum that being a new counterparty, it may make it a little bit more difficult for uh onboarding uh cited by risk, um but in terms of uh the steps needed, uh it sounds like it's pretty uh straightforward from um what I'm able to understand of the uh advocate.

A

Yeah, oh I'm sorry. I lost the the latter part of your question. There.

B

So I was just asking uh in terms of implementation. um Like a gamma side, it sounds like uh there's just the updating of the contractor with the admin keys, then, on maker downside, it's more of working out the new counterparty relationship. I just wanted to ask if there was any other uh implementation steps, either from gamma side or something that you've already addressed within the maker dial process. That uh would yeah for consideration.

A

Yeah sure um so other implementations. uh Well, we what we can share with um the makerbot communities. We we we'll share with you how we price, currently our lp tokens and that's essentially going to be the way that I, I guess, look that um liquidations will take place. You'll you'll be able to determine the price of any lp token at any given time and we're happy to to share that code with you. We have. uh I have this sort of in the appendix slide and how we mint our lp tokens.

A

Essentially, we value everything in terms of token one which in this case would be run btc and we value token zero and token one and then that'll determine you know. You know how many, how many lp tokens cement based on what's being deposited uh in terms of the lp token price. uh We essentially just take all the amounts of token 0 and token 1, and we divided by the total lp supply and we can use these amounts for determining you know what what's you know, whether whether something is under collateralized or over collateralized?

A

um We can also. Alternatively, you know pull the allocation of wbtc red btc in in in our lp tokens at any given time and we can price those according to you know how. However, you know how maker prices those assets.

A

One thing to consider, though, is if, if, if you do want to go by, you know the straight median dtc price versus the wbtc price or rent vcc price- and I know this was mentioned in in prior uh collateral applications for wbtc and ram btc that you may want to just use like the median btc price, because you can technically redeem wbcc and rentbtc for the underlying assets run. Btc would be quicker because if the permission was processed, it would take five to ten minutes, but also you know, wbtc.

A

Historically, it's been very well pegged to the wbtc price on centralized exchanges, whereas you know, if, if you don't want to be beholden to the pool price, the unispot pool price, we can use the median btc price, because at any time you can withdraw uh the underlying wbtc and rem btc from the pool, and you can redeem those for you know, naked btc or for east.

A

On a centralized exchange and that would that should be a relatively painless process, so I would say you know either of those two methods would be would be good, I would say maybe the latter one was less less risk because you know the pool price there may be some um occasionally. You know if if there were to be a dpeg event, you know- and let's say the units, while price were to lag behind the actual price um it may be better to use. You know the median btc price.

A

As you know, the tokens, the underlying tokens.