izumi’s LiquidBox: UniswapV3 NFT Farming Platform
Programable Liquidity As A Service on Uniswap V3 incentivizes liquidity with efficiency!
Project parties can set up pairs and liquidity pools based on Uniswap V3 to attract liquidity more efficiently by offering rewards in a limited range and different rewards in different price ranges.
izumi Finance provides a wide range of liquidity options to meet the needs of project parties.
Option 1: “Concentrated liquidity mining” model for stablecoin with fixed price
Each block in the (0.95p,1.05p) price range earns 10 tokens from the stablecoin and pegged-asset issuer. Izumi evaluates the total effective liquidity in the (0.95p,1.05p) price range and assigns it linearly according to the proportion held by each LP, thus attracting liquidity to this range to achieve minimum slippage.
Note: If the LP provides liquidity in a price range that is over-covering (0.95p,1.05p), only the liquidity within (0.95p,1.05p) is calculated as the weight of the incentive allocation; if the NFT price range offered by the LP is inside (0.95p,1.05p), such as (0.98p,1.02p), no incentive is given or a weight penalty factor is applied.
Analysis: When compared to the xy=k model, the 0.95–1.05 interval is over 50 times more capital efficient, requiring only one-fifth of the TVL and incentives for the same slippage.
Option 2: “One-sided non-impermanent loss Mining” model for non-stable tokens in the full price range
Similar to the traditional xy=k model, the LP also puts half the value of the USDC and half the value of the project tokens into the izumi platform to start liquidity mining with one click.
However, in order to avoid the “Pool 2 dilemma” caused by the traditional xy=k model (i.e. LP puts all USDCs as potential buy orders and project tokens as potential sell orders into the liquidity pool of the trading pair, causing LPs to passively sell their project tokens and suffer from impermanent losses when the price goes up.
It also increases passive selling pressure on the project side, preventing price increase and creating a “lose-lose” situation. izumi innovated the “one-sided non-impermanent loss” model based on Uniswap V3, which puts the LP’s USDC into the (Pa, Pc), just below the current price Pc, and puts the LP’s project tokens into the staking mining instead of into the trading pool (i.e. above Pc as potential sellers), thus creating a model of “stronger buying than selling”, which is more conducive to a price increase.
For example, if the current price of BIT is 3 USDC, LP will deposit 1k BIT and 3k USDC into the izumi platform in one click to mine and receive a 90% APR on the total principal (similar to the Sushiswap xy=k model). izumi manages this by placing 3000 USDC in the Uniswap V3 (0,3) price range to provide potential buying orders when the price declines. The 1k BIT is placed in the staking module to lock in liquidity, but not in Uniswap V3, so it won’t be sold passively when the price rises, resulting in no impermanent loss or passive selling pressure on the project side.
Analysis: When the price goes up, there is no impermanent loss, and when the price goes down, the percentage of impermanent loss for LP (Pa=0) is the same as xy=k. The overall distributed incentives for the project are the same as in the xy=k model. In the up cycle, passive sell liquidity is low, whereas in the down cycle, buying support is consistent (if Pa is greater than 0 then the buying power is also enhanced).
Option 3: An “active interval mining” model incentivizes non-stable tokens to provide dynamic liquidity around current prices.
Essentially, the project incentivizes LPs that provide effective liquidity around the current price, and the percentage of the project owner’s reward is calculated by counting the time they are active in providing effective liquidity.
https://www.paradigm.xyz/2021/05/liquidity-mining-on-uniswap-v3/
Option 4: “Fee multiplier mining” model for non-stable tokens with dynamic prices
After staking Uniswap V3 NFT on the izumi platform for liquidity providers or LPs, izumi analyzes the trading fees earned by this LP NFT throughout the staking period and provides additional incentives provided by the project.
For example, a user supplies BIT-USDC liquidity, generates an LP NFT, and stakes it on the izumi platform, and the project owner offers an additional 1X rewards on the fees during that time. The user receives 30BIT and 90USDC when he withdraws the NFT and claims the commission, and he can then receive an extra 60BIT reward from the izumi platform.
Analysis: This program is equivalent to the project side providing additional subsidies to professional market makers so that professional market makers can dynamically adjust their positions to the current price perimeter even if the trading fee is not enough in the early stage of low market cap tokens, and market makers could get the trading fee multiplier to achieve profit. The reason is that in Uniswap V3, Taker fees cannot be assigned to a specific Maker (LP), so as long as the market maker does not provide more than 50% of the effective liquidity and cannot reach conspiracy, the cost of fees for the market maker’s fake trading (acting as both taker and maker) is higher than the platform rewards. Therefore, there is no incentive for this kind of fake trading.
Option 5: “One-sided mining with lock-up period” model for short put options
The liquidity provider can put liquidity within a price range, lower than Pc, on Uniswap V3 and lock the LP NFT for a period of time, which is essentially equivalent to providing passive buying support when prices fall. From the financial product perspective, it is close to short put options, which can be used as a public product that project parties pay to buy for the community or an insurance product that lending platforms use to hedge liquidation purchases.
For example, if BIT=3USDC and an LP places 10k USDC of liquidity in the (1.5,2.4) price range and locks the position for 30 days, the LP can receive a reward of 10k*24%(APR)*(1/12)=200USDC equivalent of BIT at the end of the lock (66.7pcs).
Analysis: When the price rises or does not fall below 2.4, the LP incurs no impermanent loss, which is equivalent to a single token gain APR=24%; when the price falls below 2.4, the LP obtains the mining reward but bears the impermanent loss.
Note: The APR of the project side reward can be calculated using the BSM option formula and dynamically adjusted with the volatility, lock-in time, risk-free interest rate, and other factors. Each cycle is limited and offered on a first-come, first-served basis.
About izumi Finance
izumi Finance is the first protocol to support Uniswap V3 “non-homogeneous” liquidity mining and extend concentrated liquidity service for multi-chains. izumi provides “Liquidity as a Service” (LaaS) based on Uniswap V3, with innovatively designed liquidity mining modules of “Concentrated liquidity mining” model for stable assets with a fixed price and “One-sided non-impermanent loss Mining” model for non-stable tokens. These structured models would support any blockchain project to better implement liquidity incentives with much higher capital efficiency and enable liquidity providers to earn extra rewards.
