[HOPR] Proposal - Gamma Strategies Liquidity Management

HOPR DAO v0.5
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Author: @bp_gamma

Hi HOPR Community!

I’m Brian from Gamma Strategies, which is an active liquidity manager on Uniswap v3. This forum post is mainly an introductory post to introduce our product offering and to discuss a potential liquidity solution.

We have been live on Mainnet since May 2021 when Uniswap v3 went live and are currently on all networks that support Uniswap. We’ve worked with DAOs/DeFi projects such as FWB, Liquity, Ribbon Finance, and THX to manage protocol-owned liquidity on their behalf.

Simple Summary:

Utilize Gamma Strategies and/or other v3 liquidity managers to manage HOPR liquidity on Uniswap v3 on Ethereum mainnet. Our suggestion is to manage all in one pool:

  •      ETH / HOPR 0.3% OR

  •      DAI / HOPR 0.3%

Rationale:

Why ETH or DAI pairing?

ETH Pros:

  • More correlated with HOPR, so a tighter range can be used with less impermanent loss
  • ETH is the most paired asset on Uniswap, so pairing with ETH would allow for very efficient trade routing

ETH Cons:

  • It’s a volatile asset pair, so the price of HOPR would likely be dragged up or down by ETH volatility

DAI Pros:

  • Price stability - Pairing with DAI is essentially pairing to USD, so there’s less correlation with the volatility of ETH

DAI Cons:

  • Less correlation with HOPR, means a wider range should be used to mitigate the effects of IL. This will increase price impact, but the status quo is full-range, so any concentration would be a net improvement in terms of price impact
  • DAI is not paired with as many assets as ETH is, so there would be marginally less efficient routing

Why just one pool?

For the same reasoning as above, contributions to a single liquidity pool will do the most in terms of capital efficiency and lowering price impact on trades. A well-capitalized ETH / HOPR pool will contribute to the greatest number of low price impact trade routes given that ETH is the most paired asset on Uniswap.

Why the 0.3% fee tier?

The 0.3% fee tier is likely most appropriate based on the trade volume of the HOPR token, but 1% could also work if trade volumes stay at depressed levels. 0.01% fee tier is meant for stable-stable liquidity pairs. 0.05% pool is meant for semi-stable pairs such as ETH-wstETH or volatile pairs with high volumes such as USDC/ETH or WBTC/ETH. The current daily trading volumes are between $10K - $20K USD. Therefore, 0.05% or 0.01% would likely be ineffective in being able to generate enough fees to pay for gas fees to rebalance and would be subject to higher impermanent loss given the dearth of trading fees.

Technicals:

Gamma Strategies utilizes a position manager contract which takes in the base assets for liquidity and deploys those assets to Uniswap v3. The depositor (HOPR DAO) would be minted ERC-20 LP tokens representative of its liquidity position. Gamma runs automated scripts which will automatically rebalance the position when certain price targets are hit.

Business Model:

  • No upfront fees or management fees on the TVL

  • We charge 15% of the swap fees and gas fees for contract deployment + rebalancing

Specifications:

  • Ranges: 25% and 400% of current price
  • Rebalance triggers: 10% of the distance from current price to either lower or upper range
  • Initial allocation of assets: 50% HOPR & 50% WETH

Benefits to Using Gamma:

  • Automated rebalancing of the position within a more concentrated range than full range
  • Better price impact control (See Appendix 1)
  • By concentrating within a range of 25% to 400%, we can cut the price impact on a full range position in half
  • No need to manage the position yourself or worry that the position will go out of range

Audits:

Gamma Strategies has been rigorously audited by ConsenSys Diligence and Arbitrary execution on March 28, 2022 and March 3, 2022 respectively.

Security & Safety

Managing liquidity solely on behalf of the DAO is much safer than managing liquidity vaults open to the public. We can assure that only the DAO has the power to deposit within to its own position manager contract.

Restricting the depositing of the liquidity only to the DAO prevents any flashloan attacks from happening as a result of an external 3rd party manipulating the token prices.

Gamma additionally has no admin function to withdraw any of the liquidity, and the DAO can deposit and withdraw from the vault permissionlessly.

The only admin function that Gamma would retain is the ability to rebalance the liquidity in the new range. But the vault would be completely noncustodial in that only the DAO would be able to deposit/withdraw to and from the vault.

Appendix 1: Price Impact Analysis**

  • Red cells are inputs
  • Concentrating liquidity within a 25% to 400% range will result in price impact of approximately 0.22% on a 10 ETH trade versus 0.45% on a full range position

Reference

Website: https://www.gamma.xyz/
Twitter: https://twitter.com/GammaStrategies
Discord: Gamma

Happy to clear up any questions or respond to anything with regards to this proposal! Thank you very much!

39 Likes
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Hello Brian,

Can you expand on the upfront terms for Gamma to provide these services? In the business model section I see the “no upfront fees or management fees on the TVL” but what is Gamma’s take outside of the TVL?
Such as: management costs, swap percentages, flat rates, etc.

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I think you neglected other liquidity issues because you focused too much on price impact. Almost all your preferences are to provide this. I think hopr needs to be included in other networks, albeit a little. When we look at the Uniswap pool, we see that only large transactions are made. I think it is due to the fee fees. With low fees on other networks, a nice volume can come from small traders.

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Hi thanks for your question. So right under the bullet where it says no upfront or management fees on TVL, we take 15% of the swap fees on your liquidity as payment for services. We would also bill for the gas costs to deploy the contracts and rebalance the positions. Each rebalance is close to $60-$100 in gas and it can run on average of 1-4 times a month depending on volatility.

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Oh yes, from my understanding after having talked with @thewanderingeditor was that the other network that HOPR was interested in was Gnosis Chain. We are also in talks with the Gnosis team to deploy there as well. However, they are still dealing with the after-effects of the Nomad bridge hack and have delayed the launch of Uniswap on that chain.

So we would love to also deploy liquidity to Gnosis Chain as well. However, we can table that for another discussion when Uniswap on Gnosis Chain goes live.

Happy to talk thru other chains. We are available to deploy on Optimism, Arbitrum, and Polygon if that would be preferred by the community. However, the largest volumes and trades do take place on Mainnet.

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nice suggestion to manage all in one pool :+1:

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Looks good. What’s the advantage compare with arrakis’ proposal?

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Based on my reading of the Arrakis proposal, they’re suggesting providing a single-sided or mostly single-sided range of HOPR tokens as liquidity.

In my opinion, based on the current volumes & liquidity, I don’t think we need more liquidity here. The current $7M in liquidity in the DAI/HOPR pool is more than enough to handle the current level of volumes. By placing single-sided HOPR right above the current price will allow HOPR to source additional liquidity as the price moves into the single-sided range.

However, it is important to note that more single-sided HOPR liquidity above the current price, will mitigate upward price movement and release more HOPR into circulating supply. I’m sure they will manage it in a way so that it doesn’t too much, but based on the current volumes, I really don’t think additional liquidity is needed here.

I would even say that you can remove up to 25% of that 7M of liquidity and hold in the treasury for now and concentrate the remaining in 25% to 400% range to fully take advantage of concentrated liquidity.

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Thanks a lot for the detailed answer. Nice to know the difference and advantage. :+1:

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Good proposal. I support this one.

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I want to say, that @bp_gamma is providing super competent and understandable answers, and I hope that we can have some liquidity managed by them ultimately.

What I would like to have explained here is, what happened during the exploits of the hypervisor, can such a situation happen again and if it would happen, would the HOPR DAO lose funds?

thank you

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Sure, I can help answer those questions. What happened in our v1 contracts are that we allowed for public single-sided deposits. For our OHM-ETH pool, an external party took out a flashloan, inflated the price of OHM by purchasing a massive quantity, deposited OHM single-sided into our contracts at the inflated price, received more than his fair share of LP tokens, dumped the OHM token, and drained some amount of the liquidity when withdrawing the LP tokens.

This only affected our one public OHM-ETH pair due to the liquidity position. This affected none of our privately-managed pairs because only the DAOs/DeFi projects have the ability to withdraw and deposit into the private hypervisor contracts.

So our privately managed pairs are safe from this type of attack regardless of whether single-sided deposits are allowed or not.

Although irrelevant for this discussion because HOPR liquidity would be privately managed, I would like to say that for our public vaults, we’ve implemented dual-sided deposits, TWAP checks, and re-entrancy safeguards at every corner of contracts. Happy to go over those more in detail, and we’ve also released an article here detailing much of the changes (Gamma’s v2 Smart Contract Audit Completed by ConsenSys Diligence & Arbitrary Execution | by Gamma Strategies | Gamma Strategies | Medium).

These public contracts have been audited twice by ConsenSys Diligence and Arbitrary Execution.

So again, I would like to re-iterate the fact that this pair will be privately-managed in that only the DAO is whitelisted to deposit/withdraw to and from the Hypervisor prevents any flashloan attack on the liquidity.

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Always excited to see more peer protocols to innovate with us together in the bear market :muscle: We respect Gamma and believe that it’s a great project. :handshake:

Since it’s a comment that’s also related to Arrakis, I will add a bit of clarity here.

First of all, there is no “right” or “wrong” in liquidity management until the outcome is presented based on numbers. Even after that, it’s only fair to make a judgement if the strategy running time is long enough to have experienced various market conditions. So as of now, Arrakis and Gamma are leveraging our respective areas of expertise and perspectives to take on the same task with different approaches. It’s totally possible that in a relatively long run both approach can achieve good outcome.

Secondly, perhaps our proposal doesn’t elaborate clearly enough. When we say initial liquidity to seed the vault, we do not demand any extra on top of what’s already on the market owned by HOPR governance. In fact, HOPR can totally migrate an amount that it feels comfortable with to let us manage. Because we allow the liquidity to be (much) more made of $HOPR, HOPR governance can also take the remaining base asset back to treasury for other use, as suggested by Gamma team as well. In the end, we have no bias towards where liquidity comes from.

CC: @rond

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Oh ok. Thanks for clearing that up.

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When I read this comment here, I thought you were referencing additional liquidity on top of the existing liquidity. My thoughts were it wasn’t needed given the sufficient liquidity that is currently existing at the moment.

So would the strategy be to remove some liquidity and add more single-sided liquidity? That could be advantageous. I honestly think this strategy works best when the DAO is low on the base asset of DAI or ETH, which doesn’t seem to be the case here.

However, if it were the case that the DAO had reason to want more DAI in its possession, it could remove some amount of DAI & HOPR liquidity and add a position that’s more HOPR dominant.

But I wouldn’t suggest adding more HOPR single-sided liquidity on top of the currently existing liquidity.

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Yeah, good remarks there. We meant to say that the source is up to HOPR DAO and we are perfectly fine with either case.

Our strategy is rather flexible and the target composition ratio between two assets can be adjusted at any time as HOPR wishes, which is totally possible once the market has decided to change its direction again. And we also won’t deploy all the liquidity on Uni at once at the beginning (though all will still be in the vault), as you already pointed out, the ratio between two assets is related to the ongoing market for $HOPR and near&long term objective from HOPR DAO.

It seems like HOPR community is very open to trying out both of our protocols. In that case, can’t wait to learn from you guys too!

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Yeah absolutely! I think @thewanderingeditor will be organizing a Twitter spaces soon, so we can get more input from the community!

And I 100% think that joint liquidity management is good here given that we’d be spreading the counterparty risk more. I would suggest managing the same pool and fee tier though, as we can divide the counterparty risk but at the same time combine liquidity from both active managers to deepen liquidity.

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Or how about we both manage half of each pool :sunglasses:

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thank you for the clarification

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I don’t necessarily disagree, however, I believe the volume may begin to increase now that HOPR has its first commercial product, RPCh. How would your strategy change if that were to happen?

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Gotcha, we can analyze in real time the volumes and see whether the current price impact parameters are pricing large purchasers out. For example, a purchaser likely wouldn’t purchase 250K of HOPR at 5% price impact. Once we see increasing volumes, we can adjust our parameters to either go narrower in price range management or simply add more HOPR single sided to the existing range. Both would effectively reduce the buyside price impact.

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