Optimized Rebalancing with JIT
It has been over 2 years since Uniswap launched their v3 and brought about the concept of active liquidity management and concentrated liquidity. But so far, no retail facing vault does a neutral active liquidity management strategies. A core reason for that is that if a vault is being incentivized on top of the AMM pool, most rational LPs in the pool would want to get the incentives and hence stake liquidity through the vault.
The dynamics of that will be that the vault will become a significant % of the pool. Hence, if the vault manager were to remove liquidity and rebalance the exposure by swapping on the pool then there will be massive slippage as the vault itself was the significant % of the pool.
This is where we bring in our active liquidity management infrastructure which will be paradigm shifting in terms of making defi efficient.
From the mountaintop of abstraction, what we are building is
Uniswap v3 + Hashflow Combined
We wanna use the best qualities of AMMs (Automated Market Makers) and RFQs (Request for Quote model)
To keep the whole interaction trustless and non custodial, we will be using JIT (Just in Time Liquidity) as a means for accessing RFQ liquidity. This will provide the most capital efficient solution for project teams to have deeper liquidity by providing liquidity in narrow price ranges and active rebalancing.
In the current model, if someone trades a significant amount on the Uniswap v3 pool, there will be significant slippage and price will move far away from the prices at other liquidity venues.
Consider for example that a vault provides liquidity to a CRV-USDC pool in 0.5-1 USDC price range.
When the price reaches 1 CRV = 1 USDC, then the vault’s position will be 100% USDC and 0% CRV.
At this point, ideally the vault should rebalance the position and swap some USDC to CRV. But if Curve is offering liquidity mining incentives then most of the pool’s liquidity will be the vault itself. So, any swap on this pool will have massive slippages and in most situations wont be feasible.
With our JIT rebalancing infra, we will solve this by sourcing CRV token’s liquidity on other venues through the sophisticated trading infrastructure of PMMs. CRV also trades on Binance, Curve etc So through integration with PMMs, we can rebalance with low slippage but still be entirely trustless through a rebalancing bundle looking like this -
PMM (Private Market Maker) adds JIT liquidity in a very narrow range(ideally inside a single tick) based on the quote they can offer by hedging on other venues.
ALM (Active Liquidity Manager) then calls rebalance function swapping through this JIT liquidity enabling them to swap with low slippage.
PMM then removes their JIT liquidity but would get the other asset and can finish their hedging and make a spread.
Initially we are partnering up with a few PMMs for JIT rebalancing but we will soon create an open market with an auction process for any one to come in and make it possible to do the rebalancing in the most optimal manner.
Here is a sample transaction where JIT liquidity provided significant optimization for GAL-ETH pool
PMM added 0.53 ETH and 0 GAL ($998) , got out with 167 GAL and 0.387 ETH ($1002) collecting 2 GAL in fees
So for a swap size of $500 in a $1900 liquidity pool, ignoring the gas costs the execution with JIT was better by 117% 🚀
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