UniBot’s Pool: A Lending Pool for Secure and Rewarding Liquidity Providing in the V3 Age 🌊
When Uniswap V2 transformed to V3, Liquidity Providing changed from a passive yield earning activity to a higher risk, higher return investment activity because of the introduction of IL (Impermanent Loss). Liquidity providing in V3 has become an activity that bears risk and needs to be actively managed.
UniBot’s Pool allows V2 LPs to continue providing liquidity in V3 AMM as before, as low-risk, stable yield passive activity. Diamond Pool does this by being the counterparty to all Unibot Factory positions. All the IL risks are stripped and borne by Factory positions, while Unibot Pool users earn a stable yield based on asset utilization with no IL risks.
Understanding the Interest Rate Model
Pool Yield Model
Diamond Protocol’s Pool Yield model is calibrated to remove IL risk from Pool users and optimize utilization. Diamond Protocol’s Pool provides counterparty lending to Unibot Factory positions. Each factory position is managed by Liquidation bots, which liquidate the position when the IL risk is too high. All IL risks are contained within factory positions, so Pool users can enjoy a stable yield that varies only with utilization rate.
The mathematics behind the Pool Yield Model are inspired by AAVE v3. Utilization Rate is “the portion of the total supplied asset that’s being utilized.” It is an indicator of the availability of capital in the Pool. In the interest model, we hope that:
- When the Utilization Rate is low, we encourage factory users to borrow and open more positions
- When the Utilization Rate is high, we encourage Pool users to deposit more
Ensuring a Healthy Diamond Pool: The Liquidation Mechanism
The health of our Diamond Pool relies on the solvency of the collateralized positions within the protocol. To contain the IL risks to Factory positions only, we designed the Liquidation mechanism.
Central to our liquidation mechanism is the Health Factor (HF). HF measures the ratio of the discounted collateralized position to the total borrowed amount, including accrued interest. Any position with an HF lower than 1 is eligible for liquidation.
Liquidators play a crucial role in our system, identifying unhealthy positions and initiating the liquidation process. Unlike traditional lending protocols, UniBot’s liquidators don’t need to repay the debt directly. Instead, they invoke the contract, and the vault closes the borrower’s position, repays the debt, and distributes the liquidation bonus (2% of the collateral) to the liquidators.
For the time being, the roles of Liquidators are played by our in-house Liquidation bots.
A Liquidation Example:
Let’s consider a scenario where the price of ETH starts at $2000, and the vault borrows 500 ETH (worth $1M) combined with 1M USDC to open a Uniswap V3 position. The initial Health Factor is calculated as ($2M * 0.8) / ($1M) = 1.6.
Suppose ETH rises to $3300 (+65%), making the V3 position’s value $2.05M, while the debt rises to $1M * 1.65 = $1.65M. The resulting Health Factor becomes ($2.05M * 0.8) / ($1.65M) = 0.99394, triggering the position’s liquidation.
UniBot’s Pool Performance Fee
As a platform that promotes sustainable growth, we currently charge a 10% performance fee on the yields earned by Pool Users.
UniBot’s Pool presents a unique way for Uniswap V2 liquidity providers to continue their V2 experience on V3 without worrying about Impermanent Loss (IL). Liquidity providing returns to its original passive, yield-earning activity format.
Who We Are
Diamond Protocol’s Unibot is a leveraged liquidity provision platform that operates on top of DEXs. It allows liquidity providers on platforms like Uniswap to hedge their LP positions by borrowing and shorting volatile assets.
Unibot’s philosophy has always been to give the DeFi and crypto community a product that allows systemic earnings in a volatile market. From the beginning of our product design, we grappled with the question of how to earn profit in a market that is so unpredictable — our result was Unibot. This product aims to significantly increase our user’s odds of winning. We aim to create a scenario where a Unibot trader can accrue fees earned and wait for an ideal exit price even if they guess the market wrong.
Our approach has since been appreciated by seasoned traders within the crypto and DeFi ecosystem, and we welcome everyone to join our discord, where we regularly host trading competitions and events with rewards. Come on by and meet the team and other veteran traders eager to discuss and share strategies!
🐦 Twitter: twitter.com/diamondprotocol
👾 Discord: https://discord.gg/diamond
✍ Blog: medium.com/@diamondprotocol
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🌐 Website: dmo.finance
☎️Telegram: https://t.me/dmofinance
