Audio and transcript from the December 16th, 2021 installment of “Conversations with the Coop” with Brian, XYK, and Saganaki from Gamma Strategies (formerly Visor Finance)!
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Crypto Texan: Hello everyone, welcome to conversations with the Co-op. This is where we source questions from the Index Co-op community to gain insights from today's leaders in crypto and DeFi. I'm your host Crypto Texan. And today on the show, we have Bryan, XYK and Saganaki with us from Visor Finance. Thank all of y'all for being here with us today.
XYK: Of course, thanks for having us.
Brian: Yeah, thank you.
Crypto Texan: So, I've interviewed one person, two people. I've never interviewed three people at the same time before, so I'm looking forward to this and I think a good way to get started would just be for each of you individually to just state your name so we can recognize your voice and just kind of give a brief introduction about what it is that you specifically do at Visor Finance.
XYK: So I'm XYK, happy to be here. I run operations at Visor and make sure that everything is running, with all of our pairs, you know making sure when we interface with different clients on Visor Phantom. I also handle a little bit of the front end.
Brian: And I'm Brian or BP. I do community management as well as business development and partnership outreach. I've been in touch with many members of Index Coop, including, you know, JD regarding like Index liquidity and Matthew Graham regarding MVI and various other Index products like 2x FLI and, you know, all the 2x FLI products and also been in touch with people working on various projects within Index, like the JPEG group and GMI as well. So, yeah, that's pretty much what I do - passing it along to Saganaki.
Saganaki: Yeah and I'm Saganaki. I do a little bit more work on the Gamma side with the active management strategies. I do research, I do a lot of the active strategy framework part where we back test and analyze potential strategies. And I help out with a lot of the financial stuff.
Crypto Texan: All right, appreciate those backgrounds and introductions everyone. So I think it would also be a good idea, you know, since Visor Finance is very closely tied to Uniswap, before we get into what exactly it is that Visor Finance does, I think it would be a good idea if we could just go through, you know, just for our listeners who may not be familiar, what is Uniswap, what are the differences between Uniswap Version 2 and Version 3. And then how does Visor tie into Uniswap and what role is it playing in the DeFi ecosystem? I know, I know that's a lot, but I just feel like that would be a good base layer of information for everybody.
XYK: Yeah, totally agreed. So Uniswap obviously is the decentralized exchange that's been around for a couple of years and, you know, they first came out with this equation called constant product function. And it allowed for the liquidity providers to just provide a ratio of assets from the price of zero to the price of infinity. And it was very easy and simple, and we saw DeFi Summer take advantage of the LP tokens that are minted once you provide liquidity and, you know, everybody essentially has the exact same position, just some liquidity providers have more of a position than the others.
So then, you know, that was a great invention, the adding liquidity providers instead of having an order books structure. But what it did was it didn't allow for the capital efficiency that otherwise can be had with Uniswap V3 or with an order book.
So Uniswap V3 represents sort of a hybrid between Uniswap V2 and a traditional exchange like NASDAQ, or New York Stock Exchange where you have – or centralized exchanges in crypto – where you have an order book and no liquidity providers. And how they achieve this hybrid solution was by making it, making concentrated positions available to LPs. And what that means is that you have to select a price range to provide liquidity within.
So if it's ETH / USDC, you're choosing, you know, $3,000 to $5,000 dollars that you're providing liquidity for. And the more concentrated your position around the current price as it's active, the more amount of fees that you get. But it also means that every single LP has a different position. And that's exactly why Uniwap used NFTs to represent the position because each position is unique.
So, you know, that creates a very capital-efficient mechanism, but it also makes it so that if you're going to be an LP providing liquidity within a price range, obviously if that price goes out of your liquidity range, you're now sitting in one asset and you are no longer getting fees.
So there's this active component that is mandated if you are an LP on Uniswap V3. And because you have to be active, you know, that costs money to mint another NFT if you want to change your ranges. And you also have to, it also costs, you know, it takes a lot of time to monitor your position.
So we launched when Uniswap V3 launched and the sole purpose of the protocol was to, you know, provide active management, so that LPs don't have to bear the cost and the time to do this, but I know you wanted to just stick to Uniswap - what it is and, what is V3 versus V2.
Crypto Texan: Yeah, absolutely. And I can't believe I'm just now realizing this, but your name XYK. That is the formula for Uniswap V2 - X times Y equals K. I can't believe I'm just now realizing. Yeah, I think it also right before we go into Visor, I think it would be also good just to get, can you put into your own words, what impermanent loss is and what kind of risk that plays with an automated market maker and how that, I guess, can be even more of a risk when using Uniswap Version 3?
XYK: Yeah, I think Brian is better at answering this than I am. Brian, you want to take a stab at this?
Brian: Oh yeah, sure. Impermanent loss on Uni V3. So you sort of risk, like providing liquidity on Uni V3 is almost like leveraged liquidity providing in that the more concentrated your range is, the higher the potential for your impermanent loss.
And the reason for that is, as the price moves within the, your selected liquidity range, you're pretty much selling off the asset that's performing better, for the assets that's performing worse. So the more narrow the bands are the more quickly you're selling that off. Whereas if the range was extremely wide, then it would mitigate impermanent loss in that you're more slowly selling the underperforming asset – or the outperforming asset, for the underperforming one.
So really the name of the game in Uni V3 is to limit impermanent loss as much as possible while also maximizing for fees earned. And that's a delicate balancing act that Saganaki and those at Gamma Strategies are developing strategies to have, like pretty much mitigate impermanent loss while taking advantage of the fee multiplier from having narrow range.
And what this entails is, you know, during times of high volatility where there's high potential for the price to move within the bands, our formulas will expand the bands as wide as possible, or to a sufficient amount. And then as volatility lessens, then the bands will snap back more narrow and take advantage of the higher multipliers. So that's sort of the trade-offs and how impermanent loss works on Uni V3.
Crypto Texan: Yeah, thanks for that. And I know you touched on it a little bit, but now let's just dig right into Visor Finance. Who's idea was this? Like how, how did this idea come about for Visor Finance? And what kind of products are you offering users, market makers, and DAOs?
XYK: So we started off, you know, wanting to create a discretionary asset management stack with Ethereum and that's pretty complicated because most of DeFi is, the way you get yield in DeFi, we see it as really two categories. One is through lending protocols where you have positive sum, you're lending out your assets, you're getting a return on that. And then there’s the yield based on hyper-issuance of new assets. So a protocol like Yearn that has strategies in order to capture returns from farming and other ways, but based upon the hyper-issuance of a new asset, like Curve for example.
So we saw these two categories and said, you know, most of traditional finance is based upon discretionary asset management. Is it possible to create a layered system, set between the NFTs that we use as vaults? And, you know, traditional vault and DeFi, where you're minting LP shares and how can we set up, then a layer that allows for a manager that is applying discretionary strategies with an element of price prediction, and an element of there being possible loss with impermanent loss, but more of a structure that allows for the management of assets and choosing where they go and things like that. And so, that was started in January of this year. And at the end of February was when Uniswap announced Uniswap V3 and the design schematics.
And so that was when the two ideas merged because being a manager on Uniswap V3 is discretionary. And so we used our stack that we had already created and deployed and just pointed it entirely towards Uniswap V3, because Uniswap V3 mandates that there's a manager.
Crypto Texan: Okay, and so what type of strategies does Visor Finance employ in these vaults? I think, are they called NFT smart vaults? I think I saw that.
XYK: Right. So I can just walk you through the structure. So the structure before Uniswap came about was, at the base layer, you have an NFT - an NFT vault, or a Smart Vault.
And we see, you know, a couple of protocols using this, in addition to us, but it’s a very interesting use for an NFT because usually it's for a unique property, and applied towards art but this vault can actually hold ERC-20s inside of the NFT and it can hold other NFTs.
And you may be asking, you know, why would you want to store – or why would you want to deposit ERC-20s into the vault? It’s because you can then permission those assets to be used by another party once they're in your vault or, you can simply keep the ERC-20 tokens in your vault. Let's say you have LP tokens that you're providing liquidity for. You have these LP tokens, you put them in your vault, you can then subscribe to a liquidity mining contract or a reward contract that lets you have full custody of your LP tokens. And the rewards are simply pointed towards your vault.
So the reward contract reads that you have these LP tokens inside of your NFT vault, and then it can pay to your vault, because you know, that is the asset that it's recognizing. And so it allows for total custody of your assets when applied that way.
And so the base layer is this NFT vault, then you have what we call the Hypervisor, which is a position manager contract that you permission your assets to be used within, and each pair or each position in a pair, you know, with a selected fee tier is its own Hypervisor. So it's a Hypervisor smart contract that is the position manager contract.
And that can be used for other things, you know? So it doesn't have to be used just for Uniswap V3, but this is the first use case. So then you have, you know, you have this contract that basically routes your assets to and from your vault and goes to the protocol. So from your vault to Uniswap V3.
Then we have another layer, which is the last layer, and that's called the Supervisor. And that is the admin contract that allows for a manager to have restrictions on what they can do, but still have enough permissions to allow them to properly manage the Hypervisor, which is, you know, the position. So that was the stack that we had created before V3 came around. And then we saw, okay, there needs to be a manager here.
So how can we apply this around Uniswap V3? And now it's a specific– so it's an NFT vault that anybody can mint. And then the Hypervisor is for each position. And then the Supervisor is where, you know, at this moment it's just Gamma, but it is the research and development entity that we have created in order to specifically be focused on managing these positions. And in the future, there'll be other managers that can come along and prove their historical performance and be a Supervisor and users can select that. So that's the stack and the reason for it.
Crypto Texan: Okay, and I just want to make sure I'm understanding this, this sounds fascinating by the way. And I love, I just love so much like the true financial use of non fungible tokens, right? And this is just a prime example of this, and I think Qi DAO over on Polygon, they have something similar to this where you mint an NFT, but let's say that I have a Uniswap V3 position and we'll use DPI / ETH LP pair as an example.
So I come to the platform or the app and I mint the vault NFT, and is it empty at this time? And then do I have to put the assets in there? And at which time do I delegate the management of those assets to a Hypervisor?
XYK: So, you'll be minting the NFT, the NFT will be empty at that moment. Then you're going to select a position that you want to add your assets to. And when you do that, you are depositing assets. And so the Hypervisor maintains, or deposits those into the position, and then those LP tokens will be stored in your vault, in your NFT vault, opposed to, you know, not your wallet, which is typical.
And so when they're in your vault, you know, that shows– those are receipt tokens showing that you have the underlying assets deposited in the position, but then the reason why we put them into the vault is because then we'll allow you to subscribe those tokens to a liquidity mining contract. And that way you'll have custody of those.
So, the entire vision of the vault is not totally built out, now we have a lot of projects that we're working with that want to do liquidity – they want to reward for providing liquidity for their positions. This is how they would do that.
So it allows for gasless subscription to a reward contract. There's many uses for this – I think Gearbox right now, which is undergoing their launch at the moment, you know, they're using a similar structure here but it's with loans.
But you still have an NFT and you have custody of those assets. So right now yeah, it's a container. It allows you to subscribe, but there's a whole lot more that you can do with that, which we hope to see built out as more protocols understand that NFTs can be used for a full custodial vault.
And some meme that I've been seeing go around a little bit is, we should all be striving for a TVL of zero, which means the protocol doesn't ever own those assets. You as the DeFi participant do, and this can be achieved by using an NFT vault and, you know, it can also be used– and I think that this will happen more on L2 where you can even deploy a contract, but do it through the protocol, but you still have ownership of that contract. So yeah, I mean a lot more to be seen with the NFT vaults, but they are a very interesting layer of our protocol.
Crypto Texan: Yeah, and another thing that just pops out at me as a question I feel like I need to ask is, you know, gas fees on, especially like layer one Ethereum, because, you know, as it goes, the more complicated the contract, and NFTs are pretty gas sensitive too, how do gas fees play into that. And does having the LP position within the NFT, does that mitigate some of those gas costs or, how does that all that play in?
XYK: The subscription absolutely does. You know, to mint an NFT, it is more expensive than just making a deposit into a traditional vault. But you will have that, you have that NFT, you don't have to mint another one.
And with that comes the ability to subscribe, and subscribe meaning there's no transfer of tokens. There's no, when you're subscribing to a reward contract, because those LP tokens are in your vault, there's no transfer. So in the long run it will be saving you gas fees, but of course, to mint an NFT, it does cost a little bit of upfront cost.
Crypto Texan: Okay, and I think you may have touched on this a little bit earlier, but what strategies does Visor Finance employ? Like how does Visor, and I think you said that you use Gamma Strategies to use this, but what determines when there is a need for a rebalance or an adjustment of those bands that have been deployed?
XYK: So there's two types of strategies that we're focused on and really their end participants. The first one, which is who we anticipated using the protocol at the very beginning, are the retail LPs or regular DeFi participants that want– their main objective is to attain yield or returns on positions that are managed by Visor.
So in that type of environment, you are concerned about, the strategy is focused on making sure the liquidity is in range, but as concentrated as possible to extract the most amount of fees, because the more you concentrate, the more efficient your capital is, and the more fees you are getting relative to any other LP in the pair.
So, and we've seen that, you know, we expected the APY or APR to go down soon after a V3 launch, but we have seen, and, you know, I think it makes sense because the fees have stayed relatively stable and high. And I think that's because, you know, all the volume on Uniswap has been routed to V3 but the LPs, you know, it’s complicated to be an LP. So you see that volume increases, TVL doesn’t, is not as much as on V2. And so you have a ratio of volume to TVL. You also have the fee tiers that have changed, and so you can have a 1% fee tiers.
So, the goal there with the first set of participants is obviously fee captured. Now that's entirely different with projects. We work with, I think it's 10+ right now that we manage active liquidity for on behalf of the projects, and there's a close collaboration with how that position is managed, but the goal there is not fee capture.
It is to lower slippage on both buys and sells, and always stay within range so that there's liquidity around the current price of the token.
Crypto Texan: Wow, I could see how that would just be a huge benefit. And I think that's why Index is getting involved there, but we can touch on that in a little bit too. First I want to touch on Gamma Strategies, and what is that relationship between Visor and Gamma Strategies? Is there overlap? And I guess contributors, how did that relationship come about?
XYK: Yeah, so the reason why, and this, it didn't start at the beginning. It was about two months after, when we realized that these strategies are complex. There's a heavy data science component to this, there's a price predictive element to that. The ones contributing to strategy, which is really traditional finance strategy creation, are not Solidity developers. They're a special type of developers and data science engineers.
And so we chose to set up a grant system of $500,000 from Visor to Gamma. And so far Gamma has issued many of these grants, some to groups at universities, some to people that are in traditional finance right now, and others to groups that have built– our latest one was one to a group that built a very robust Uniswap V3 simulator that we can use because, you know, using Uniswap on Testnet is difficult.
They've built the entire thing and type script and it accounts for all the different variables that would otherwise be shown in a live environment, for us to quickly test strategies. So apart from giving those grants out and being able to work with other participants and members that are not really DeFi focused, but they have a background in traditional finance or data science.
Other than that, you know, there's a lot of research that goes on in finding high return pairs and building out Dune dashboards for Arbitrum, Optimism, and Mainnet, you know, looking at the past seven days and past two days of fee returns and then choosing to manage a pair based upon those returns.
So the pairs selection is a big part of what Gamma does, then once the pair has been selected, then it has to be identified, you know, is this a correlated asset pair that the strategy is very different because there isn't going to be this real impermanent loss risk or price divergent risk, you know, I'm talking about renBTC / WBTC or stable to stable coin, or a non-correlated pair, which is USDC / ETH and you have to have different strategies for each category of pairs.
And so within the uncorrelated asset pair like USDC / ETH, two strategies have emerged. The first one Gamma identified, which was a Bollinger bands strategy, which simply means there's a moving average that you're setting an interval for. So you're looking at the past seven days or the past seven minutes. You're looking for an average between all of the intervals within a select time period, and then you're applying a standard deviation, which is setting how wide the range is. And so you're trying to anticipate the next interval and what the volatility is going to be within that next interval.
And providing liquidity within a range is, does not exist in traditional finance because you're providing liquidity in an order book system, but the Bollinger band was designed in traditional finance to measure the next interval of volatility. And so it's trying to capture what is going to be the highest price and the lowest price within this next time period.
And so that was the first strategy that was not only discovered and prepared, but deployed, by Gamma using Visor protocol. And then our next focus, or Gamma's next focus was to mitigate impermanent loss and, they're called Gamma 1.0 and Gamma 2.0 strategies.
And so Gamma 1.0 was the Bollinger band strategy, Gamma 2.0, really comes into effect when we want to entirely eliminate impermanent loss. So, anticipating that there's going to be a high period, a period of high volatility and not really knowing, you know, is it going to go up or down, but knowing there's going to be volatility and wanting to not participate in that volatile period, because you may go out of range.
You may suffer impermanent loss and that's important – impermanent loss, it has to be measured between a start date and an end date. So a deposit or withdraw, but you never know if you're managing a position where anybody can withdraw, you may know that it's going to go– the composition of assets in the position is going to be 90/10 for two hours.
But somebody could be withdrawing at that time period, and you don't want them to suffer impermanent loss. So you would rather just not have exposure to the volatility in the upcoming time period and the way that is solved, which is a very creative way, that the people at Gamma and Saganaki specifically was able to identify and deploy, is by taking one of the bands and basically exploding it, you know, making it so that it goes almost to infinity or almost to zero.
So that you're still, you haven't withdrawn the liquidity, but the composition of assets in the position are not going to change as long as that price range, as long as that band is far removed. So you're no longer providing concentrated liquidity. And so you don't have that exposure.
Crypto Texan: Wow, that's fascinating. So I guess my next question is, what types of pairs are available? And I'm guessing they would just be the types of, I mean, is it permissionless or is it just the types of pairs that Gamma Strategies is comfortable managing? Cause I can imagine that there'll be pairs out there that, like I personally wouldn't want to touch and I would assume that Visor Finance and Gamma Strategies also wouldn't, I think in just like from a, like a low liquidity asset or low volume asset, is there anything that you prefer not to touch or how does all that work?
XYK: Yeah so Uniswap, in their docs, called these pairs exotic pairs, and what they mean by that, I mean, I think what they mean by that is, it is low volume, low TVL pairs. And so we don't like to touch exotic pairs, you know, we want a lot of volume, we also want in relation to the volume, a certain amount of TVL that makes it so that there’s, that volume returns a high amount of fees.
And that was another reason why Gamma created the Dune dashboards that any, you know, these are public, you can see the APYs and, usually the one, like if you look at the past two days on Mainnet, you're going to find pairs that return more than 1000% APY. And that's not even taking into consideration a concentrated position.
That's just looking at all fees returned in the pair, relative to the TVL that's in the pair. So Gamma will look at that and select, but we also, for economic arbitrage and exploit reasons, don't want to have more than 20% of an entire pair’s TVL.
And so that sort of limits us because we're seeking TVL obviously, for our own protocol, but we want to limit the amount that we take to 20% in the pairs and we’ll apply caps to that. So it really leaves us with the top pairs by volume and with the TVL considerations as well. So really blue chip ones.
And, you know, we manage 40 pairs right now. And I think on Mainnet those will be, we won't be adding too many more other than a whole new category, which is the stable to stable, you know, that makes sense to have on Mainnet, but we are, we've deployed our contracts in Arbitrum and Optimism and going through an audit with Quantstamp.
So we want to be able to manage many more pairs on L2. And so those, you know, some of those constraints won't apply on L2, where they do apply on Mainnet. And we're working with Quantstamp to figure out a position safety framework so that we can have virtually uncapped and be able to manage more than 20% of the pairs.
But yeah it’s, on L2 I think there'll be a lot more trading, there'll be a lot more volume because we won't have the gas cost considerations, so you'll have more volume and so therefore more fees cause the fee tiers stay fixed, regardless of the network.
So yeah, right now I think maybe 50-100 we'll manage on Mainnet, and then those will all be blue chip stable to stable, highly correlated. And then on a L2, after we go through our audits, it'll be more of a permission-less environment. And hoping to see others deploy Hypervisors that can then be subscribed to our strategies. And that way we can go with the direction of entirely, the person who is deploying assets can have custody the entire time and not have to deploy them into our positions, but can rather just subscribe to a strategy.
And that will allow for a lot more as the strategies develop and can be selected and identified and run in a safe environment, like, OpenZeppelin, Defender who we've engaged. We want to focus more on the strategy components and allow anybody to deploy a Hypervisor position manager contract for any pair, any fee tier. But that's more about the roadmap.
Crypto Texan: No yeah, that was great information. And I'm wondering if y'all could just shed some color on this - how does Index fit into this? Because you mentioned, you know, we don't have the most liquidity or the most volume for our Index token, but I know we are partnering with Visor for a strategy for Index token. And is that just to maintain liquidity and reduce slippage through all price points? Or how was this partnership developing between our DAO and Visor Finance?
XYK: Right. So the way that we see it, as you know, there's a lot of liquidity that is either owned or owned by the community across multiple different decentralized exchanges.
And so, you know, number one we want to consolidate, or projects want to consolidate that, they would rather have that liquidity in a V3 pair because you're increasing your capital efficiency 10 to 40 times. So now you have such a lower slippage with the same amount of capital, so you can see why that would be attractive to have your position on Uniswap V3.
And then further, if any person who's trying to buy or sell the token is using an aggregator like Matcha or 1inch, that will automatically route to that V3 position anyway, so as soon as you reach this critical point where all trades are being routed through the V3 position, then the liquidity in other places is almost useless because there's no trades being run through that.
And so, you know, it's a sequence of events. We view this and have seen it where a position is opened on V3, and a project gets involved and first moves their protocol, own liquidity there, and then others will naturally add their liquidity. And in terms of the sequence of events, that can either be through our position because we can list that publicly on our front-end and allow for anybody to deposit their assets into the position.
So now you're growing that, the fees will then only be generated on V3 in this position. So even anybody just joining or moving their liquidity from V2 to V3 are going to participate in this fee capture. And then the next sequence is being able to apply liquidity mining rewards for joining our position. And that goes back to subscribing and using the NFT vault. And that's sort of the last step, but it is all to achieve the goal of capital efficiency on protocol, own liquidity.
Crypto Texan: Yeah, that makes perfect– oh yeah go ahead.
Brian: Yes. Just, yeah, just very specific to the Index liquidity that, you know, proposal just got passed and I think sometime next week, we'll get the liquidity Index deployed to Uniswap, but something particular about the Index pool is that, you know, there's a lot of trading data available, like Uni V3 trading data and there's already about close to a million of TVL on the pool and the protocols and add another 1.4 million to the pool. So there's going to be well over 2 million of liquidity in there, and when you have a little bit more liquidity we can add more trading data, typically we want 90 days of trading data, we can run the more advanced strategies that Saganaki and the people at Gamma have created.
The strategy we were talking about earlier where you're really expanding the bands as wide as possible during periods of high volatility, and those strategies, based on our back testing results, had the best results, the best yields after impermanent loss.
But this can only be done when there's a sufficient amount of liquidity within the pool, because when you are expanding the bands, you are technically increasing slippage, but you're also decreasing impermanent loss. But if you do have a sufficient amount of liquidity in there to begin with, then that is what makes this strategy pretty optimal.
And yeah, just wanted to throw that out there, cause the most projects were just maybe migrating liquidity through Sushi onto Uni V3 or just starting a pool where there isn't that historical trading data and they're not supplying enough liquidity on there. We typically run different types of strategies to handle that, and they're more heuristic in nature where we'll do a price stand of let's say plus or minus 50% around the current price tick and as the price moves up or down a 10 or 15%, you'll rebalance around the current price. So just want to add that in there about the Index liquidity pool.
Crypto Texan: Yeah, thanks for adding that. And this is so great because I remember when Uni V3 first came out and you know, I got up there and I was ready to put my position in and I just thought this is hard. I mean, to put it bluntly and I was like man, I would totally pay somebody to do this for me. And then I just thought, you know, that'll happen, right? Someone's going to come along and figure that out. And then, here you are, y'all are doing it. But do y’all run into any competition? Like who else is doing something similar to this?
And I feel like y'all are the most successful at it. So I guess, yeah, those are my next two questions - who are your competitors and why do you feel like y'all have been so much more successful than those competitors?
XYK: Well I mean, we started day one, so that gave us a big head start. We also, this is my view, but I think we're more thoughtful about the design of the position manager contract.
So when someone that comes on and says, oh, I want to be a manager, there's one option, which is using the Uniswap LP NFT. And so in order to be a manager, you have to come up with your own contract that interfaces with Uniswap V3 core contract and is a replacement of that NFT.
And the NFT, the way that you provide assets is very limited. And so we constructed a design that allows for changing– well so first, you know, it allows for two positions to be able to play at once you have the limit position, you have the base position, this is done so that we can seamlessly change ranges without having to withdraw all of the liquidity.
And then, you know, redeploy it into another range. It can sort of be done by having the two simultaneous positions. And this also allows us to change the composition of assets when we rebalance without having to do a swap. And a lot of people think, okay, well, if you're doing a swap, then all that's going to cost is gas cost, and you can be very specific about the ratio of assets if you're swapping from one to another in order to rebalance.
But what people don't understand is that, when you're swapping on Uniswap, you're paying those fees. So if you're using, if you have deposits of other people's assets and your sole goal is to return fees on those underlying assets, if you're swapping, you're paying the same thing that you're getting, right.
So if you're swapping a hundred thousand dollars, you’re paying $1,000, if it's in a 1% fee tier. But if you use limit orders, like we do in our contracts to rebalance, you have zero slippage and you're not paying any fees at all. So, most of these other position managers swap unrebalanced, and that to me is just the biggest differentiator, because you're eliminating so much of what you could be making on behalf of your LPs, just by doing this rebalance, without being thoughtful about it.
Then the second part is the Supervisor component. So being able to have an external contract that can call all types of different functions with the position in order to apply any strategy. And, you know, that's a big reason why we created Gamma and Gamma created the active position strategy framework, where you can see all of these variables and you can construct a strategy and simulate a strategy that can be applied to the contract itself.
So back when I was discussing, you know, who are the types that are working at Gamma and work on these strategies, it's non Solidity engineers that don't want to, or can't, develop a contract to then develop a strategy that interfaces with the contract. So instead we have an endpoint that allows a data scientist to come up with a strategy, deploy that, without having to understand Solidity.
And so the design of the contract that allows for that strategy component, that doesn't have the strategy on chain like others do allows for number one, you're not going to get front run from your strategy because it's not built into the position itself. And number two, you can attract talent that understands how to make a strategy, and then deploy that strategy.
And then I guess the third differentiator would be the fact that we focus on retail piece first and then once we got that down, we were able to focus on a different category and help, which are the projects that we help, actively manage liquidity on their behalf. And that's what we call Visor Phantom. And so, we haven't seen that with others, you know, we've captured that and built out great working relationships with a lot of partners in order to do that. So yeah just, those are a few differences.
Crypto Texan: Okay, I'm glad you touched on Visor Phantom too, because I was going to ask about that. Another question I have is I saw today on Twitter that Uniswap at the front end now routes to the most price efficient with the less slippage, through V3 or V2. Does that affect y'all, in a negative or a positive way or is it just not a big deal? Just more efficient, I guess.
XYK: So there have been two updates to what Uniswap calls the Auto Router. And the first one came out probably 8 to 10 weeks ago and that, that is what you're describing, which is the Auto Router. And the first thing, when Uniswap V3 came out was, was to route the front end to V3 if there's less slippage.
Then there was the secondary update to the Auto Router that was more of an auto router than just configuring the front end. And that was always going through the path that has the least slippage, and that was great for us because that is the goal of the position. And because we have highly concentrated positions, our positions are usually the ones that the Auto Router runs through. And it also makes it so that when we're creating a position or maintaining a position on Uniswap V3, we are also competing with that V2 position.
So if someone's using 1inch or Matcha to make trades, and a V3 position is better than Sushi, meaning less slippage, then of course it's going to be routed to us. But then if anybody's using Uniswap or using their Auto Router in their API, it will also route to us.
So we view that as, I mean, that was great for us. And then today, Uniswap came out with an update to their Auto Router, which is more about providing liquidity and makes it so that the ratio of assets that normally would have to have been acquired independently and previously to adding liquidity, once you select your range, meaning you have to have both ETH and Index token and you have to have the exact amounts and you have to select a price range.
Now you just have to select a price range and select one asset. So there's an atomic swap that goes on that allows for you to provide liquidity with one asset, provided that you're also paying for the swap.
Now that is also great for us because for the first six months we always allowed for single-sided asset deposit. And that was because when you're depositing a single asset into our position, reason why we don't do a swap and we don't mandate a secondary asset be paired with that is because it goes straight into the limit position, which means, you know, we're deploying a low position with the single-sided asset one tick above the price, so that when the price drifts into that tick, it now is comprised of two assets in that, and when that hits the ratio of the base position, that limit order then get deposited into the base position.
So that was a complex way of allowing for single-sided assets. Now because of the security framework that we're working on, that, you know, it sort of suggests that there's some risk there, allowing for single-site asset deposit and there being flash loan, price manipulation, when using that we have now constructed a deposit that enforces the ratio of the position.
So now that Uniswap announced today, and I think it's deployed, this new Auto Router atomic swap function now allows us to continue on what the single-sided asset deposits without having that economic exploit possibility.
Crypto Texan: Wow, I feel like my mind is just now opening up to like all the different composability options of Uniswap and y'all are just taking advantage of these. And I think this is huge. I mean, I've got so many more questions. I wish we had more time, but we've got about eight minutes left. Let me think, which one do I want to ask? Make sure we get in. So I'm kind of thinking of another way that Index could utilize this platform, like in a sense where, you know, we've got an index, where there's an asset that we would like to include in that index, because it has a high market cap, but maybe it's not Ethereum native, but there are some tokens it's just got low liquidity on Ethereum. Is there a way that we could kind of use that, you know, maintaining liquidity within a certain price range to help with rebalancing and reducing slippage? Is that a strategy that could be implemented possibly? What issues do you all see there?
XYK: So, we've thought about this a lot in the terms– we've had some of the fractionalized NFT projects come to us where you can deposit NFT, you can get minted fractional tokens in return, and of course that is meant to be paired with the floor price of the NFT. And so there's a desire to create liquidity and also to map price of the floor or of an external oracle. And so the way that, you know, right now we do not add a trading component or volume component, meaning we're just deploying liquidity and making sure that that stays around a certain price and, you know, all the different functions that we do with position management, except for the swapping function, external to the position, right?
So we're not making any trades in order to influence the price that we have a position around. Now, what we have done is paired up with market makers, and that's a service that they provide and just working out the collaboration with them. So I think that these things will come together where there's definitely a needed mechanism in order to make sure that the price oracle is a live price oracle that is sort of mapped on Uniswap V3 for pairs that have extremely low TVL and I think that's possible, but I think that that sort of requires constant buys and sells, constant.
And that's what market makers do, where they look at the spread between two exchanges and reduce the arbitrage possibility. So that could naturally happen, but with low TVL, you know, because of that high slippage and especially high volatility with price floors, or even you know, an index, especially if it's with other assets that have low liquidity and high volatility, then there needs to be this reduction of arbitrage and a trading component. So we are thinking about that and how to add that, but for the meantime, we're working with other market makers.
Crypto Texan: Okay, yeah, that makes sense too. So when I think about Visor’s L2 strategy, I think you said that you're on Arbitrum and Optimism and so–
XYK: We deployed there yes but it's not open to the public.
Crypto Texan: Oh, okay. Okay. And I'm assuming that's because Uniswap V3 is also on those two roll-ups.
XYK: Yes
Crytpo Texan: And so there was a proposal that went through saying that Uniswap V3 is likely going to be deployed on Polygon soon. Do you all see yourselves making the bridge over there and deploying there as well? Is that, I mean, that's your main focus, right? You follow where Uniswap V3 goes.
XYK: Yeah, exactly. We follow Uniswap and that's because they're the, of course we're loyal to them because they were the inventors of this concentrated liquidity, and they're the only ones right now that exist. And so we do follow them where they go. And so we have been in discussions with Polygon for a while and we're prepared for launching on Polygon when Uniswap deploys there.
Crypto Texan: Yeah, we're big Polygon fans over here too at the Index Co-op, got a lot of our assets deployed over there. Now, one last question or two more quick ones - do y'all look at any other AMMs like Sushi or Balancer or does that not really fit y'all's model?
XYK: Yeah so we've also discussed with Sushi about Trident, where those contracts are going to be very similar to Uniswap V3 contracts. And so we’ve made a determination that our contracts will be compatible with Sushi's version of concentrated liquidity. And then beyond that, we're building, we're working with Olympus Pro in order to allow other projects to use V3 positions in a bond at Visor, V3 positions and you know, our next one will be with Float and that'll be an Olympus bond that takes Visor LP tokens.
And that'll be next week when that goes live. And then, and so we view Olympus as sort of a liquidity venue and also working with TokeMak and seeing them as a liquidity venue where the liquidity that's going to be deposited through TokeMak and through the liquidity directors, you know, they have to choose an end liquidity venue.
So if the liquidity directors are choosing Uniswap V3, well you're going to need a manager for that, so that's how we're thinking about interfacing with them and building adapters. And then there's another protocol that has a V2 or a V2 style, you know, non- concentrated liquidity AMM that is working on a concentrated AMM version that is very novel.
And it’s not using any of the, it's not using NFTs, it's not using concentrated positions as they were invented by Uniswap, but instead using something different, which is very exciting. And we'll be managers on that concentrated AMM as well.
Crypto Texan: I feel like you're being very careful not to say the name of that AMM.
XYK: Yeah I am, I am.
Crypto Texan: That's okay, that's okay. Well, it looks like we're up on time here. Y'all this has been fascinating, great information, really excited about the partnership between Visor and Index. So last thing to send everybody off - can you just tell everyone where to find out more about the three of you and Visor?
XYK: Sure so we're mainly on Discord, you know, our Telegram has an announcement channel, but we're on Discord - you can see our logos here, these are the– or not logos but profile orbs, you know, find us on Discord, in our channel, visor.finance is the website. And you can visit our web app through there, but that has also all the relevant links. But yeah, stop by our Discord, happy to chat anytime.
Crypto Texan: Absolutely, yeah. Thanks to everyone who's listening live. Thanks to the core contributors of Visor Finance for being here. This is being recorded and we will get this out in about a week. I appreciate it, y'all have a great weekend and we'll see you next time.
XYK: All right, sounds good. Thank you so much for having us.
Crypto Texan: Absolutely.
XYK: All right, bye.
Brian: Thanks guys.
Saganaki: Bye.
Host: @Crypto_Texan
Audio Engineer/Mixing: @Nakamomo6
Marketing Image: @ChavisChance / @cafpunk
Transcript: @qjuniperus
Conversations with the Coop - Core Team - Gamma Strategies (formerly Visor Finance)