DeFi Transaction Packagers + Uniswap v2
Plus fall out from Maker auctions
DeFi Tx Packagers
As lego money building blocks, DeFi protocols can interact with each other in an almost unlimited number of ways. This composability is why, even with only a few financial primitives, a robust ecosystem has developed. Wallets and DeFi skins are tools for users to interact with different protocols, but the user is still responsible for approving every transaction.
InstaDApp was perhaps the first project to package two or more transactions as a product. Last summer, as Dai struggled to maintain its peg, Maker hiked the stability fee, leading to large spreads between Compound’s Dai borrowing rate and the Maker stability fee. InstaDApp created a clever tool that allowed users to migrate debt from Maker to Compound with just a single click thanks to a proxy contract.
Since then, other tx packagers have emerged to help users save time and gas.
DeFi Zap – suite of products that either deploy capital across multiple DeFi protocols (Zaps) or give exposure to a trading strategy in a token (Zips). It has become a popular way to provide Uniswap liquidity pools and it now has several 1-click products that give traders an automated position, which isn’t that different than Set Protocol, but Set bills itself more as an asset manager.
DeFi Saver – it offered InstaDApp like functionality initially, but with the advent of Flash loans, it announced a tx packaging product that closes a CDP/Vault in 1 transaction by using a flash loan to borrow Dai, pay back Vault debt, withdraw ETH, convert to Dai and repay flash loan.
DEX Aggregators – 1inch, DEX.AG, Totle and Paraswap are doing a form of tx packaging. Finding the best price across decentralized exchanges is only part of it, now all aggregators use proxy contracts to split up orders across exchanges to avoid slippage. 1inch and Paraswap also use GasToken to reduce gas consumption. Aggregators are also planning to pass on trading discounts from staking DEX tokens like KNC or ZRX.
Yield Enhancers – RAY from Staked, Idle Finance, Topo, iearn and a host of others are trying to offer an aggregated yield by rebalancing into DeFi lending protocols with the highest interest rates. Fluctuating rates, high gas prices and a limited data set have so far limited their efficiency, but packaging lending protocols across the same asset will surely catch on once the market reaches sufficient size.
DeFi tx packagers are not creating products for retail users, but they are the type of tooling and infrastructure that a mass market product would use. Flash loans will accelerate this trend.
Uniswap V2 Announced
On Monday, Uniswap released details on for its V2, set to be launched in Q2. Here is the blog announcement and the V2 whitepaper. There are no layer 2 or scalability upgrades but a whole lot more. Major additions:
Pair any token with any token – every asset in Uniswap v1 had to be pooled with ETH, forcing liquidity providers to take on ETH exposure. V2 allows pairing of any two assets, but this is mostly targeted at stablecoins. This has been one of the most requested features and will help liquidity providers with impermanent loss.
On-chain price oracle – Although several projects used Uniswap v1 as a price oracle, the team advises against it, not because it’s a bad price oracle (it’s actualy pretty good), but because it can be manipulated (remember bZx?). The v2 oracle is surprisingly simple: the average of the price in current block and the price at the end of previous block. An attacker would have to manipulate the price in one block and then mine the next block, but they would be susceptible to losses from arbitrage bots. Any DeFi project can use Uniswap as an oracle for any time duration using the TWAP (Time Weighted Average Price)
Flash swaps – pretty much what you think. Like flash loans, a user can borrow as much of any asset on Uniswap as long they pay back the loan within the same transaction. This will potentially democratize arbitrage opportunities (or just outsource them to miners?).
Protocol fee – Uniswap v2 includes a 0.05% protocol fee “that can be turned on and off”. Not entirely surprising, given the direction of dYdX and Dharma, but Uniswap has always positioned itself more as a public good than a product. That’s not to say that public goods shouldn’t charge a fee, but it’s a little surprising that Uniswap announced a fee before Compound. The fee will not be activated at v2 launch nor does the team expect it to be turned on in the “near future”. Likely, Uniswap views these contracts as long-term infrastructure, so they are including a fee structure for the option later down the road.
Meta transaction for pool shares – In v2, users can authorize a transfer of shares in Uniswap pools with just a signature (rather than an on-chain transaction). A small change, which may help Uniswap pool shares be used as collateral in lending protocols.
The ability to provide liquidity in stablecoin pairs should be the most attractive product feature to the current crop of Uniswap users, but the on-chain price oracle will likely have the biggest ripple throughout the DeFi community. The Uniswap v2 oracle will be free to use and may lead to the use of more priceless financial contracts that can’t be manipulated.
Tweet of the Week: Uniswap LP returns
Uniswap LPs get some downside protection. It’s long been a mystery as to why so many assets sit in Uniswap, because impermanent loss means that simply hodling assets would be better. DeFi Zap Co-founder Nodar Janashia presents a Uniswap LP analysis that shows that in the market downturn, being a Uniswap liquidity provider insulates you from market losses.
Maker Debt Auctions coming to a close, what’s next?
Last Thursday, Maker kicked off its “FLOP” auctions, which sell newly minted MKR for Dai in order to cover the shortfall from the failed auctions during the market crash on March 12th.
So far, it has raised more than $4m Dai, which has been burned to recapitalize the system. Despite the emergence of the Dai Back Stop Syndicate as a buyer of last resort, the auctions have gone smoothly with auction prices being in line with current MKR prices (~$260).
White the Maker Foundation was a purchaser (or broker) for all of the auctions over several days, it appears that auctions are now being won by unknown addresses. There have been strong bids throughout – even when Maker won – so there is still demand for MKR despite the system malfunctioning.
There will surely be a lot more fallout over coming weeks but quick takeaways:
Maker is now just another DeFi project – Dai has always had this special luster in the DeFi community and received preferential treatment from developers and users. Those days are over. sUSD and USDT are likely to be the biggest beneficiaries with additional integrations. Most importantly, DeFi projects will now view Maker as the competitor it is. Compound will be a project to watch.
Real world assets accelerated – Maker was not shy that the move to Multi-collateral Dai was to open up the Maker system to real-world assets (like USDC). Now that Maker has ripped the band aid off, I don’t expect them to be shy about targeting the [regulated and compliant] mass market.
Will a trustless alternative emerge? – Many in the DeFi and Ethereum community are not happy with Maker’s decision. Ameem floated MetaCoin, a governance-minimized stablecoin, and with more reliable oracles (like Uniswap v2), there will likely be another attempt at a decentralized stablecoin.
Chart of the Week: DEX Market Share over past 24 hours
The volatile market has been good for decentralized exchanges, which continue to post strong volume numbers. Dune Analytics has a great dashboard covering all the DEX activity, and with the addition of dYdX to its calculation, the dashboard now offers a comprehensive view of the DEX space. DEX volume is at about $20m a day for the past month. The market is surprisingly competitive with dYdX, Uniswap, Oasis, Kyber and 0x all taking more than 15% of volume market share.
Odds and Ends
New mass-market savings app, Linus, launches public beta Link
Gitcoin launches Round 5 of matching funding for public good projects Link
DEX.AG unveils limit orders, Curve.fi and Connect Wallet integrations Link
Metacartel Wave IV Grants Link
Dune Analytics offers Compound-specific data queries Link
US House bill considers “Digital Dollar” as part of Coronavirus stimulus Link
Thoughts and Prognostications
The Day the Market Structure Broke [Kyle Samani/Multicoin]
Cryptoasset liquidity on Synthetix [Delphi Digital]
No BTC, No Ethereum Killers [Vance Spener/Framework on Blockcrunch]
Saint Fame & ZORA, marketplace for limited-edition goods [Bryan Flynn/NFTY]
Understanding Risks in DeFi [Hugh Karp/Nexus Mutual]
That’s it! Feedback appreciated. Just hit reply. Written in Brooklyn (again) where I try to get outside every day.
Dose of DeFi is written by Chris Powers. Opinions expressed are my own. All content is for informational purposes and is not intended as investment advice.