Smart LP Overview + FAQ
Overview
What is Smart LP? Smart LP is an automated tool to actively manage your digital assets within Uniswap V3 pools.
Why Uniswap V3?
Uniswap V3 is currently the DEX with the most significant transaction volume and trading fees. Given the current market structure and expected DEX growth, active LP management is a new, but already large and rapidly growing market with clear tangible benefits to capital providers.
Why do I need a Smart LP?
Uniswap V3 allows its liquidity providers to determine the price range of the provided assets in order to maximize the return on capital given an initially defined risk and trading strategy.
However, one managing their capital on their own would face challenges given: a) crypto assets are inherently highly volatile;
b) high gas fees on Ethereum mainnet and other fixed costs;
c) need to have expertise to design, backtest and execute their trading strategy in a timely manner.
Smart LP automatically monitors prices, rearranges positions, recompounds earned fees and splits all the fixed cost pro-rata to LPs’ deployed capital. As a result, your return on investment is higher due to frequency of compounding and lower fixed costs, while benefiting from professional market expertise and time savings.
What is a trading strategy and its risk appetite? You will find a description of each strategy and its risk level within the specific pool.
What are the key risks of providing liquidity?
Price risk — even if you provide only one asset to the liquidity pool, you are still exposed to the price movements of both assets in the pair.
Smart contracts risk — while Uniswap’s smart contract code is relatively lean and simple, it is always possible that a bug in one of Uniswap’s smart contracts is identified and exploited. The same stands with Smart LP contract risk. That being said, the Smart LP contract has been audited (please see details below) and the team has deployed its own capital in the initial pool.
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The more volatile the price action of the underlying token, the more the liquidity provider loses relative to if they simply never provided liquidity. Impermanent loss in Uniswap V3 may be more explicit than in Uniswap V2 but returns from providing concentrated liquidity are higher therefore the corresponding risk should be covered assuming an effective trading strategy is designed.
What is risk appetite and risk tolerance?
Risk appetite and risk tolerance are used interchangeably but are different.
Risk appetite is a broad description of the amount of risk an investor is willing to accept to achieve their objectives. It’s a statement or series of statements that describes their attitude towards risk taking.
Risk tolerance is the practical application of risk appetite and considers the degree of variability in returns an investor is willing to bear.
As an investor, you should have a good understanding of your attitude towards risk. If you take on too much risk, you might panic and sell at a bad time. But if you don’t expose yourself to enough risk, you may be disappointed with your returns and potentially unable achieve your objectives.
How do I work out what pool fits my risk appetite best?
Think about how you might answer these questions:
• How much funds do I have to invest?
• How worried would I be if crypto markets fell dramatically?
• Am I planning to track your investments daily?
• Would I consider investing in pools with different risk profiles?
Your age, income and investment objectives all help determine your risk appetite.
Most likely your risk appetite sits within the following buckets:
Averse — avoidance of any financial impact or loss, is a key objective.
Minimal — only prepared to accept the possibility of very limited financial impact, if essential to delivery.
Conservative — seek safe delivery options with little residual financial loss only if it could yield upside opportunities.
Moderate — prepared to invest for benefit and to minimise the possibility of financial loss by managing the risks to tolerable levels.
Aggressive — prepared to invest for best possible benefit and accept possibility of financial loss.
Crypto is a new asset class and is inherently volatile, therefore it is prudent to assume that a risk of any of Smart LP pool would be in a range between “conservative” and “aggressive”. Each pool will indicate its risk profile defined by a combination of its assets, their historic volatility, volumes and the trading strategy.
You will have an option to choose what Smart LP pool fits your risk profile.
Financials — formulas and definitions
Trading fees = collected + uncollected fees from Uniswap v3.
APR — trading fees collected from Uni v3 / time averaged capital.
7 days APR = (7 trading collected fees & uncollected fees from Uv3 / time averaged capital) /7*365
Net APR = trading fees collected — impermanent loss– rebalancing fee — performance fee — management fee
APY = annual return assuming Net APR is reinvested at each rebalancing event.
Divergence loss — once impermanent loss is realised it becomes permanent i.e. actual cost (divergence loss / cost) in the operating leverage structure.
Gas fee to rebalance the position is incurred by the contract manager and is reimbursed to the LP providers through the performance fee. This fee is not a mark-up charged directly to the LP provider but rather sits within the performance fee (see below).
Gas fee to add or remove the liquidity is purely the direct cost of each LP.
Rebalancing fee — depending on a pool Uniswap V3 charges 0.05–0.3% — 1% fee to balance the liquidity in 50% to 50% proportion.
Performance fee is set to 5% for the initial pool to attract liquidity. Each pool might have its own performance fee rate, however tentatively it should be in a range from 5% to 20% depending on a market condition. Performance fee is the percentage of trading fees collected from Uniswap V3 being charged during rebalancing, liquidity added or withdrawn events and might be withdrawn from the manager contract on a weekly basis. Performance fee is charged in order to cover rebalancing gas fees, operational and capital expenditure and to support long term development of the project.
Management fee is set up at 0% rate for the initial pool. Each pool might have its own management fee rate, however tentatively it should be in a range from 0% to 2% depending on a market condition.
Market fees and competitors
Initial benchmark for traditional markets’ capital management fees is set as following
Performance fee — 20%
Management fee — 2%
It has impacted the fee structure among Defi asset managers and many has adopted it dHedge — 20%/0%
Yearn — 20%-10%/2%
Harvest — 30%/0%
Depending on their market position, we have observed the following fees range for Uniswap V3 active managers
Performance fee — 5%-10% (median: 10%)
Management/withdrawn fee — 0%-2% (median: 0%)
Smart LP Fee Structure
- 5% performance fee
- Gas fees for rebalancing the position are taken out from the performance fee and are not directly recharged to the LPs.
- 0% management fee
- 0% withdrawal fee
In order to grow TVL we have decided to set up the lowest fee possible for the initial pool. Fees for the following pools will be market based. At the same time, our initial focus remains to grow TVL and the market share.
FAQs
Where do I send my assets?
You deposit your assets to Smart LP smart contract whereas the contract deposits your funds directly to Uniswap V3 liquidity pool. You receive an LP token confirming your ownership rights of the deposited funds. Please, don’t send or sell this LP token to anyone mistakenly, otherwise you won’t be able to get your assets back.
Is your smart contract audited?
Yes, the smart contract has been audited by Ambisafe. Link to the auditor report.
Do you have a bug bounty?
Yes, the bug bounty program currently has a fund of $50k.
Security again… or why is the estimated gas fee so high?
Gas fee estimate is a function of a load of the Ethereum network and a difficulty of your transaction.
To preserve your capital and protect it from various malicious attacks, security features have been the key focus of the smart contract design. It means that upon your interaction with the contract is processing more operations, therefore the difficulty of the transaction is relatively high.
We appreciate the security focus, however will there be any refund of the gas fee?
Yes, initial 100 users who deposit 5000$ or more (translated into USD at a time of your deposit) will receive a rebate (to be paid in USDC or USDT) of gas fees to make sure a deposit transaction fee does not exceed 100$. For example, you will receive 150 USDC of a refund if an indicated transaction fee as of time of your deposit of 15,000$ has been an equivalent of 250$ (as per the transaction hash details). You can track them being processed from the following wallet
0x6727f2A74ae1db3d50F3232925164021b02DaECC
If there are unclaimed fees, and I withdraw my liquidity, will I get a part of that liquidity income?
Yes, as unclaimed fees are paid during rebalancing, when a user withdraws capital from a pool, it will also result in that pool being rebalanced.
Can I deposit one asset only or other than 50/50 proportion of both assets?
Yes, however the contract will swap your assets into the existing proportion of both assets. The proportion of both assets will be close but not equal to 50/50, unless there has been a recent significant movement in price of one of the assets.
What assets will I receive when I exit the position?
Upon a withdrawal you will receive both assets in the existing proportion. The proportion of both assets will be close but not equal to 50/50 unless there has been a recent significant movement in price of one of the assets.
Is there a cap for the pool size?
Yes, each pool will have its size in order to maximise the capital efficiency and to protect LPs against a variety of malicious attacks. Initial pool size is $3m.
Do you have user guide?
Yes, we do!
