The Visor Vault will actively manage liquidity on Uniswap v3.
Users deposit the base assets (single-sided or double-sided) for an LP position directly in their vaults and permission those assets to be actively managed by the Uniswap Supervisor. 90% of protocol fees are distributed to the LPs and 10% are distributed to VISR stakers.
Why is active management needed?
Providing liquidity on Uniswap v3 got trickier and more labor-intensive (than it did in Uni v2) because LPs are required to provide liquidity at set price ranges, so if the price of the underlying asset moves outside of the set price range, the LP no longer earns fees without re-adjusting the price ranges
For example, if a user provides liquidity for the ETH-USDT pair at a price range between $2,500 - $3,000, and the price of ETH rises above $3,000, the user will no longer earn fees
Additionally, fees earned from providing liquidity are not automatically re-invested
Typically, the narrower the range that liquidity is provided, the greater the capital efficiency and the greater the yields that may be earned by the LP
Capital efficiency gains can reach up to 4000x improvement versus Uni V2 for LPs providing liquidity within a single 0.10% price range.
The Supervisor automatically manages the price ranges, rebalances assets, and re-invests earned fees to generate yields in an optimal fashion.
Benefits of active management:
Much higher yields than a passive LP strategy. Yields above 300% APR are not uncommon.
Greater savings on gas fees as users only need to pay gas to deposit assets into their vaults.
Compounding of fees through re-investment
Risks of active management:
Price risk – Regardless of which side of liquidity that you provide, you are still exposed to the price action of both pairs of assets; i.e. providing only USDC to the ETH-USDC LP pair, will still expose you to the price of ETH
Divergence costs – Divergence costs represent impermanent loss becoming permanent as a result of rebalancing assets into a new range
Impermanent loss can in certain cases be more pronounced than a Uni v2 strategy, but the higher yields from providing concentrated liquidity should more than make up for that
Are there any management fees?
10% of all fees earned go to VISR stakers and 90% get re-invested
No fees go to treasury
Does impermanent loss still exist?
Yes, impermanent loss is minimized due active management, but it is not completely eliminated
See Impermanent Loss section for more information
What is the difference between providing single-sided vs double-sided liquidity?
The main difference is convenience. You are able to supply only one side of the pair vs. both
You will receive an LP percentage based on the value of your contributed assets
You are still subject to IL (divergence costs) even if you supply only USDC of an ETH-USDC LP pair
What happens when there are more of one asset than the other in an LP pair?
The excess assets will then be placed in a limit position to enter into the main position as needed
The alternative would be to swap for the correct balance of assets; however, this incurs a 0.3% swap fee which is unfavorable for returns
Does impermanent loss still exist? Even if I only provide stablecoins?
Yes, impermanent loss still exists even if you only provide USDC of the ETH-USDC pair
The ability to provide only a single asset into the LP pair is strictly for convenience; your LP % exposes you to both assets in the pair
In Uniswap v3, the ratio of assets can waiver from a 50/50 ratio, unlike in Uniswap v2. As one asset moves up in price in relation to the other within a set price range, the ratio of that asset decreases in relation to the other
For example, in a ETH-USDT LP where liquidity is provided between $1000 - $3000 and the current price of ETH is $2000, as ETH approaches $3,000, an LP will have more USDT & as ETH declines to $1,000, an LP will have more ETH
Given the dynamics of Uniswap v3, impermanent loss can be more magnified than in a Uniswap v2 situation due to the fact that the ratio of assets can sway completely one way or the other
What is divergence cost?
Divergence cost is the result of impermanent loss becoming permanent
As the price of an asset sways within its range and moves out of range, there will be some amount of impermanent loss, and rebalancing will realize and cement those losses
What do the APRs on the dashboard represent?
The APRs on the dashboard refer strictly to fee-based APR, which is total fees earned as of the last rebalance divided by the current value of assets
Do the APRs include IL or divergence costs?
No, the APRs currently do not reflect IL or divergence costs
The new analytics dashboard will include profit & loss metrics and graphs to track your performance against other benchmarks
How are the fees distributed?
If you are an LP, your total assets + fees will be reflected in the “Current Balance” section of your dashboard
If you are staking VISR, you will receive a daily distribution of VISR
How can I see my daily distribution of VISR?
In the upper right-hand corner of your dashboard, click on your address (left of the green button)
You will be taken to your vault address on Etherscan
Go to “Erc20 Token Txns,” and you will be able to see VISR being sent to your vault daily .
When I withdraw from an LP position, what assets do I receive?
You will receive assets directly in proportion to the assets in the pool regardless of what you originally deposited
I.e. even if you deposited only USDC into the ETH-USDC pair, you will receive back USDC & WETH
How are the fees handled?
90% of the fees will be automatically re-invested into the LP positions
10% of the fees will be used to buy VISR on Uniswap and distributed to VISR stakers
Are the vaults audited?
An audit by Certik has been released. Please see here: https://link.medium.com/5LSj1rLZKhb
The Uniswap Supervisor will have an additional audit process, for which we have partnered with Code 423n4 to sponsor a $60k USDC smart contract audit competition
Two more audits by top tier auditing firms (ConsenSys Diligence & Quantstamp) are currently in the works
Who is developing active management strategies?
Gamma Strategies, a research foundation, is responsible for researching and developing active management strategies on Uniswap v3 for Visor Finance
If you are interested in developing strategies for Gamma, please apply here: https://airtable.com/shrE2y3iicf0IxkTi