Alpha Pro is a permissionless platform to launch liquidity vaults on Uniswap V3.
Launch token, liquidity mine, and deposit into V3 just like V2, and get the FULL benefits of BOTH protocols!
Using Alpha Pro, anyone can set up their own liquidity vault* to:
- Increase token liquidity on Uniswap V3, minimise capital losses, and facilitate price discovery.
- Guarantee tokens will always be tradable.
- Launch liquidity mining campaigns on V3 just like V2, using a single ERC-20 token and a standardised staking contract.
- Have full control over token launches, and achieve better decentralization.
- Provide LPs with a simple way to add liquidity, just like Uniswap V2.
Alpha Pro achieves this by using Alpha Vault’s innovations in Decentralized Market Making Strategies, with on-chain parameters that can be adjusted to achieve the best blend between capital efficiency and worst-case liquidity.
*The vault will have a similar code-base to Alpha Vaults, which was audited and battled tested over 8 months of continuous operation without performance issues or security incidences. Alpha Pro will undergo another audit before launching.
Introduction
Uniswap V3 (V3) was launched on 5th May 2021, and it quickly became the most capital efficient DEX within DeFi, surpassing Uniswap V2 (V2)’s trading volume using only 25% of its liquidity. This is because for the first time, V3 allowed market making to take place on an AMM by concentrating liquidity within a price range, rather than across the whole spectrum of prices (aka V2).
Alpha Vaults was launched on Mainnet on 7th May 2021, 2 days after V3. It is the easiest way to provide liquidity on V3, and has been live on Mainnet for over 8 months. It is still the best performing, least volatile, longest running, and most robust LP vault of its kind.
Alpha Pro is the next step for Alpha Vaults. It uses Charm’s expertise in Decentralized Market Making Strategies to help projects increase the liquidity of their tokens on V3.
The challenges
V3 provides better liquidity and price discovery, but presents some challenges for token launches, liquidity mining, and liquidity provision:
- Providing liquidity into V3 is difficult, because liquidity providers (LPs) have to choose a range, and rebalance it to stay within range.
- LPs have substantially higher risk of impermanent losses (IL) on V3, compared to V2.
- Tokens have no liquidity if they are traded outside a range.
- Directly incentivising a V3 pool (eg using the V3 staker) means a few wallets can extract most of the incentives (eg if they provide narrow liquidity).
- Positions on V3 are not ERC-20, therefore standardised staking contracts cannot be used for liquidity mining.
What projects are doing now
Because of the challenges, many projects:
Launch tokens on V2, or use a full-range position on V3
- This means projects are missing out on the benefits of V3 to provide deeper liquidity and better price discovery.
Choose a 3rd party liquidity manager to manage V3 liquidity on their behalf. This means:
- Limited scope to decentralize, because their liquidity is being managed off-chain.
- Projects run the risk of having no tradable tokens if a V3 range is poorly chosen, if it’s not updated frequently, or if the price is too volatile.
Launch tokens on V3, but with less token incentives.
- This means there will be a smaller and less efficient markets for the tokens, and will not reduce the risk of a few wallets extracting most of the rewards.
- V3’s capital efficient architecture also introduces a number of inconveniences for liquidity mining campaigns.
The Alpha Pro solution
Using Alpha Pro, projects can build their own permissionless vault to manage liquidity on V3.
The vault allows projects to launch liquidity mining campaigns just like V2 (eg using StakingRewards), have full control over the vault’s strategy, increase token liquidity using Concentrated Liquidity, and guarantee tokens will always be tradable using Full-Range. In addition, the vault’s shares are ERC20, which means LPs can deposit, withdraw, and stake just like V2.
The vault is therefore an interface that combines the capital efficiency of V3, with the simplicity and familiarity of V2.
Some of Alpha Pro’s use cases are described below.
Use cases
Providing Liquidity
Instead of depositing into V3, LPs can deposit into a V2-like frontend. LPs do not have to choose a range, rebalance, or hedge IL risks, because Alpha Pro can do it on their behalf.
Liquidity Mining
Instead of using a staking contract to directly incentivise a V3 pool, projects can deploy a standardised staking contract, and invite their LPs to stake their Alpha Pro shares (which are ERC-20) into the contract.
The above is easy for LPs and projects because it is the same as staking using V2, and avoids unfair distribution of rewards because all LPs follow the same strategy determined by the projects or their governance.
Achieving Decentralization
Decentralization is a key priority for many DeFi protocols, and projects using Alpha Pro have more scope to decentralize because:
- Alpha Pro will be one of the most decentralized products within DeFi, because all its activities, source codes, and strategies will be available on-chain.
- Alpha Pro’s Strategy Parameters are adjustable on-chain, which means projects or their governance will have full control over the vault’s strategy.
With Alpha Pro, projects can therefore use familiar tools to manage all aspects of their liquidity on V3.
How it works
Alpha Pro works by combining Passive Rebalancing (V3 style LP) and Full-Range (V2 style LP) into a single vault. Passive Rebalancing is used to concentrate liquidity, increase capital efficiency, and minimise IL; and Full-Range ensures the tokens will always be tradable.
Therefore, Alpha Pro can achieve better capital efficiency than V2, and guarantee projects’ tokens are tradable in all market conditions.
When deploying their own vault using Alpha Pro, projects will need to choose the Strategy Parameters*, depending on the balance they wish to achieve between capital efficiency and worst case liquidity.
After choosing the parameters, the vault will run by itself, and there is no need for further intervention unless projects wish to update the parameters. Alpha Vault’s track record shows how the vault can automatically rebalance to keep the market price within range:
* A more detailed document on how to use Alpha Pro will be published closer to its Mainnet launch.
Conclusion
Alpha Pro is a new product from Charm that combines the best of Uniswap V2 and V3. It helps projects of all sizes increase the liquidity of their tokens on V3, and provide a simple, fair, familiar, and decentralized way to launch tokens and liquidity mining campaigns.
Alpha Pro guarantees tokens will always be tradable, and has flexible parameters to let projects choose how much liquidity they want to concentrate, and how much IL protection to offer to LPs.
The parameters are adjustable on-chain, which means projects (or their governance) will have full control over the vault’s strategy. Each parameter can also be included in governance frameworks, and provide a base layer to build more Decentralized Market Making Strategies.
With Alpha Pro, you can finally have the best of Uniswap V3 and V2!
Charm is working with its partner protocols ahead of Alpha Pro’s Mainnet launch, and we’d love to work with you too! If you’re interested, you can contact Charm at alphapro@charm.fi, Discord, Telegram, or Twitter.
See you soon : )
