>> next-gen liquidity management infrastructure
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For liquidity providers, Uniswap V2 is a version of Shannon's Demon wherein the timestep between re-weights shrinks to 0. In other words, assets are shifted to maintain a 50%/50% inventory ratio at all times.
Example: Assume the pool's holdings are initially balanced at 50%/50%. If the price of
token0rises 25% while the price of
token1is steady, it will become unbalanced: 56%/44%. To fix this, 10% of
token0holdings must be traded for
token1. To learn more, you can interact with this math on Desmos.
In practice, arbitragers rebalance Uniswap pools after much smaller price movements. In most cases, much less than 10% of holdings is necessary to facilitate the trade.
Uniswap V2 maintains this invariant by holding onto all liquidity at all times. But as we saw in the example above, most of that liquidity is rarely touched. Even after a massive 25% price spike, only 10% of
token1holdings would need to be swapped for
token0to get back to 50%/50%. This is what makes Uniswap V2 so capital inefficient.
Uniswap V3 allows you to keep all that rarely-used liquidity (the stuff that's far from the current trading range). But instead of actually saving it, many people move it closer to the current trading range － levering up their positions. Unfortunately, if you're trying to maintain a balanced portfolio, this is dangerous because small price movements can cause large shifts in your inventory ratio. Worse yet, when a leveraged position is out of range, it's impossible to re-center it without locking in "impermanent" losses.
What if we stop using leverage and simply save the funds that Uniswap V3 frees up? What if we deploy them to other yield opportunities like Compound, Fuse, and Yearn? This is what Aloe Blend does. More specifically, Blend combines the capital efficiency of Uniswap V3 with the passive liquidity style of Uniswap V2. It maintains a 50%/50% inventory ratio without sacrificing asset productivity.
At Aloe Labs, we believe Blend can and should be a hyperstructure, so we built it to be 100% decentralized, permissionless, and autonomous from day one. Anyone can deploy pools and silos, there are built-in incentives for bots to run
rebalance(), and there are no fees, governance, or multisig. Blend runs entirely on-chain and requires no historical price data, so DeFi teams can integrate with it easily.