Our Uniswap Advantage

This page describes the issues with Uniswap V3 and our solutions.

The Problem with Uniswap V3

Uniswap V3 marked a significant evolution in the world of automated market makers (AMMs), introducing the innovative concept of concentrated liquidity. This advancement heralded a new era in capital efficiency and liquidity optimization, setting a precedent for future developments in decentralized finance (DeFi). However, problems also have arisen for many users in this space.

Impermanent Loss

When one provides liquidity, their profit depends on the price of the assets involved. This can lead to significant drops in value for Liquidity Providers(LPs), which can make holding a liquidity position undesirable. According to this article, around 50% of Uniswap V3 LPs are unprofitable.

Our Solution: Through Sand Castle, a user can borrow the volatile token and short it in the position creation thus creating a hedge against decreases in the price of the token.

Example:

Assume 1 ETH = 4000 USDC.

Lets say that a user wants to farm the liquidity between 1 ETH and 4000 USDC; however, they don't want a decrease in the price of ETH to affect them.

First, they provide 2000 USDC on SandCastle. Then, they borrow 0.5 ETH , sell it to USDC, for 2000 USDC to then have a total of 4000 USDC. Then, they borrow 1 ETH to create a position with 1 ETH and 4000 USDC, while holding a 0.5 ETH short on ETH. This makes a more delta neutral position for the user, which is more aligned with their risk.

The graph above shows how one can protect themselves from impermanent loss.

Misaligned Goals

If a user holds a token that they speculate will increase and own, they will be against providing liquidity as impermanent loss will limit their potential profit and they must sell some of their tokens for a base token(e.g ETH/USDC/DAI) to provide liquidity. This leads to a lack of liquidity for many protocols.

Our Solution: On Sand Castle, a user can borrow the base token so that they can maintain holding their same amount of their tokens while providing liquidity. They can also create leverage by selling the base token for their token.

Example:

Assume 1 ETH = 4000 USDC.

A user wants to form a liquidity position between 2 ETH and 8000 USDC. However, they are bullish on ETH, and they only own 2, so they don't want to sell any. Through SandCastle, they can lend 2 ETH and borrow 8000 USDC to form the liquidity position.

Price Moving Out Of Bonds

Through concentrated liquidity, a user can tighten their tick bounds to increase the amount of liquidity that they are supplying. However, the position can only collect fees when the price is within the user's tick bounds. This creates a problem for liquidity providers trying to maximize rewards or liquidity.

Our Solution: Through SandCastle, a user can create leverage in their Uniswap v3 position to increase their liquidity amount while maintaining wider bounds.

Example:

Assume that 1 ETH is 4000 USDC

A user wants to form a concentrated liquidity position instead of forming a position where the bottom tick is 5% below the pool price and the upper tick is 5% above the pool price, they can form one where the ticks are 10% from the pool price with 2x leverage. Both of these positions will provide the same amount of liquidity, but the latter will earn fees longer.