Introducing: Unibot’s Auto Vault

We are proud to introduce an upcoming product in UniBot: UniBot Auto Vault!

Unibot Auto Vault represents our effort to let more users enjoy the benefit of Diamond’s Leveraged Liquidity Provision Strategy on Uniswap V3. We pluck the best-performing strategies from the pro-actively managed Unibot Factory vaults and code them into an automatic vault, so users can invest and forget. In this article, we will walk you through the mechanism and main features of Auto Vault and how it will make investing in Uniswap V3 strategies easier than ever. Let’s dive in!

What Is an Auto Vault

Uniswap V3 increases capital efficiency by letting users zoom in on the range they want to provide liquidity. It is well known to require active management since once your liquidity position goes out of range, there will be no fee income. Diamond Unibot factory vaults allow users to provide liquidity on V3 with leverage, thus forming a long/short position on the underlying assets. This helps Unibot Factory users to maximize their capital efficiency and be able to earn long/short profit on top of Uniswap fees.

However, like V3, Unibot Factory requires active management, like selecting the right range, leverages to be used, and most importantly, when to close the position and take profits. We realize not every user has the time or bandwidth to actively manage their positions. In our effort to democratize alpha, we select strategies that have been tested on our platform and automate them into an automatic vault that self-executes according to pre-set parameters.

Strengths Of Auto Vault

A Simple Way to Earn Uniswap V3 Fees

Uniswap V3 is innovative in its concentrated liquidity design; however, compared to other CPMM (Constant Product Market Maker), it adds another layer of complexity in that traders would earn zero fees when the price falls out of range, and this has made it hard for users to tap into.

UniBot Auto Vault aims to be an invest-and-forget investment vault open to all users. Starters can treat this as your entry point into Diamond Unibot and Uniswap V3, and veteran users can use this as a peace-of-mind product that you can park their assets in during your crypto-free holidays.

Auto-Rebalancing

Unibot Factory is a platform for traders to form various positions/strategies on the spot market through leveraged V3 positions. It boasts fast execution speeds, zero-collateral leverage, and low slippage. However, Unibot Factory only sets the stage for traders to act out their strategies/narratives. In comparison, Auto-vaults are self-executed and re-balance themselves according to the pre-set parameters.

Auto-Compounding

For each rebalance, Auto Vault collects all of the earned fees and reinvests them back into the strategy. This helps our users maximize their yields when the strategy is performing well.

Auto Stop Loss

Our bot will automatically close the position in the Auto Vault if the stop loss, defined by our volatility model, is triggered. This helps minimize the draw-down of the strategy when the market is too volatile.

Back-tested LP Strategies

The strategies that UniBot Auto Vault provides are all back-tested by our team. Unlike most active liquidity management platforms, we aim to provide the best strategies that maximize overall PnL ROI instead of maximizing fee income only and disregarding the impact of impermanent loss.

One thing worth noting is that each of the strategies in Auto Vault fits under specific market conditions. Users should only invest in the strategy of Auto Vault after fully understanding when it performs best.

The First Strategy — 3X Bear Strategy

Strategy Overview

This strategy is a bearish strategy that utilizes UniBot Factory and Pool to open a net-short liquidity provision position on the WETH-USDC 0.05% pool on Uniswap V3 of Arbitrum. The strategy provides liquidity at a ~15% range (1500 ticks) centered at spot price, embedded with an auto stop-loss mechanism determined by our volatility model.

The essence of the bear strategy is to:

1. Short volatility
2. Bet on the decline of the ETH price

💡 Therefore, the strategy performs best in a downtrend market with medium volatility and controlled market decline.

Behind the scenes, the Auto Vault borrows 3X worth of ETH from UniBot Pool, sells 1X of them for USDC, and provides liquidity with 2X ETH + 2X USDC to form the liquidity-providing position.

Example

Let’s assume 1 ETH = $1,000 USDC, and initially, there is 1000 USDC in the vault, and then the Auto Vault will:

1. Borrow $3000 worth of ETH from UniBot Pool
2. Sell $1000 worth of ETH for USDC
3. Provide 2 ETH + 2,000 USDC of liquidity into Uniswap V3

The graph above is a simulation of our Bear strategy, assuming an average 120% Fee APR from Uniswap V3 earned in 5 days. As you can see, the strategy is still similar to shorting a straddle in TradFi, but with better protection on the downside.

Back-testing Result

Methodology

• The simulation is based on historical Uniswap V3 swap data on Arbitrum (WETH-USDC 0.05% pool). We simulate the resulted performance of which the strategy would have performed if we had provided liquidity in the back-test period
• Rebalances were done every five days
• For each round of rebalance, the re-balance cost is assumed to be 0.1% of the net asset value
• Stop Loss was triggered by our algorithm when volatility exceeded the volatility threshold. After the position is closed due to stop loss, Auto Vault will not open a new position until the next re-balance date comes (i.e. five days have passed since the last re-balance)
• Swap Fees, Hedging PnL, and Borrowing Interests were incurred at every rebalance
• Maximum drawdown is derived from the end NAV of each rebalance period
• Initial Investment = $10,000

Key Metrics

6 Months Backtest Results

• Backtest period: 2022/04/21–2022/10/12
• ROI (%): 58.2%
• APR (%): 122.08%
• Maximum Drawdown (%): -15.35%

2 Months Backtest Results

• Backtest period: 2022/08/12–2022/10/12
• ROI (%): 17.18%
• APR (%): 103.08%
• Maximum Drawdown (%): -15.35%

1 Month Backtest Results

• Backtest period: 2022/09/12–2022/10/12
• ROI (%): 6.65%
• APR (%): 79.8%
• Maximum Drawdown (%): -7.56%

Future Development of Auto Vault

Positive Delta / Delta Neutral Strategies

We are developing more strategies for Auto Vault, including the ones with positive/zero delta. Finding the holy grail is hard, as the market is ever-changing, and it’s hard to have a strategy that fits all. However, we believe by providing our users with suitable tools, and it will be much easier to make profits on Diamond Unibot for all kinds of different market environments.

Strategies For More Trading Pairs

As stated in our whitepaper, we aim to expand the supported trading pairs in UniBot Factory so that users can have a wider range of choices regarding liquidity provision. As this can happen anytime soon, we are also working on testing more strategies on various trading pairs in Auto Vault.

Closing Thoughts

We are testing and finalizing the code of UniBot Auto Vault, and we plan to launch it in November. Please stay tuned to our Twitter and Discord for the latest updates.

Useful Links

🌐 Official Website: https://dmo.finance/

✍ Blog: https://medium.com/@diamondprotocol

🐦 Twitter: https://twitter.com/DiamondProtocol

👾 Discord: https://discord.com/invite/5WszxeZvX