The A51 Finance Thesis
Autonomous Liquidity Provisioning (ALP) Protocol.
Last updated
Autonomous Liquidity Provisioning (ALP) Protocol.
Last updated
Concentrated liquidity provision, introduced by Uniswap v3, allows liquidity providers (LPs) to allocate their assets within a specific price range. This approach offers several advantages, such as enhanced returns from capturing trading fees within that range, reduced exposure to extreme price volatility, and potentially better capital utilization. The ability to select custom ranges has ushered in a new era, enabling liquidity providers to tailor their investment strategies to achieve specific goals.
However, this newfound freedom has its challenges. It demands a deep understanding of market dynamics and a comprehensive grasp of the risks associated with impermanent loss, which can hinder capital efficiency. LPs face a trade-off: they can earn higher fees with narrow ranges but also risk greater impermanent losses. Addressing these challenges requires retail liquidity providers to invest time, acquire knowledge, and exercise patience in manually managing capital and making informed decisions.
Just as a blacksmith needs the right tools to forge molten metal into a finely crafted sword, a liquidity provider requires an optimal toolkit to navigate their liquidity provision journey. This allows them to maximize profits safely under various market conditions.
Today's LP Tooling Infrastructure is Flawed:
Time-Intensive and Manual: Strategies must be constantly monitored on AMMs, and portfolios need manual rebalancing.
One Size Doesn't Fit All: Manager protocols like A51 Finance v2 (previously Unipilot) and Arrakis Finance don't account for the diverse needs and risk appetites of each LP.
Complex UX for Beginners: The entry barrier is high for newcomers.
With the anticipated launch of Uniswap v4, liquidity provision will undergo a transformation, with LPs gaining the ability to devise powerful strategies using hooks.
We founded Unipilot after the launch of Uniswap v3, aiming to offer LPs a platform to manage their liquidity on Uniswap. While our v1 and v2 protocol versions saw significant adoption, they fell short in addressing LVR and other liquidity provision risks, failing to empower LPs to devise custom and profitable strategies.
Given the extensive research that has recently been done into liquidity provision and the upcoming launch of Uniswap v4, we're committed to equipping LPs with tools to design advanced strategies using hooks and extending this capability to other AMMs with Uniswap v3-style architecture.
LPs need an automation layer over existing AMMs and effective hooks for Uniswap v4 to get more control over their liquidity.
Here are some parameters that LPs will have the flexibility to adjust:
Market Modes: Choose from Bull, Bear, Dynamic, and Static.
Rebasing Strategies: Define how LPs want their liquidity to react to price fluctuations or periods of inactivity.
Exit Preferences: Designate exit strategies for liquidity when certain parameters are met.
Liquidity Distribution: Decide how liquidity should be distributed within ticks, with options like exponential, flat, or single tick readily available.
Hedging: LPs can hedge their positions through borrowing or options trading.
Furthermore, we plan to grant our LPs access to community-developed hooks for Uniswap v4 and other AMMs based on Uniswap v3, which will eventually mature into an LP strategies marketplace.
