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Let’s think about how useful a generalized wrapper-token and its factory, if invented, are.
日本語版:
https://mirror.xyz/kyoro.eth/9zlEopd3vhJKx1IaNJjufgSjRi8JIdfFujhKYfbIjqY
Liquid Staking Derivatives (LSDs), including Lido’s stETH, have emerged, but handling them in stableswap AMMs needs some efforts.
Also, as more and more things are tokenized, there will be cases where stableswap AMMs will not be able to handle them just due to differences in their unit of measure. For example, gold-related tokens. Are they expressed in ounces or grams? Even the difference between grams and kilograms is problematic.
Just simple generalized wrapper-token (and its factory) may be useful for these issues.
A wrapper-token contract converts 1000 gGOLDTOKEN to 1 kgGOLEDTOKEN. Factory contract allows one to create such wrapper contracts with 2 inputs:
Address of a token which is going to be wrapped
Ratio of the wrapping
*This is just a design. I’m not developing/coding it.
Stableswap AMMs like Curve v1 and Velodrome stable pools assume tokens in the pool can be exchanged at ~1:1. Not feasible for other rates like 1:1000. Thus company A’s gram-gold-token and company B’s kilogram-gold-token cannot be handled by stableswap AMMs because they are in different units.
For LSDs, if DEXs support rebasing tokens, they can handle the stETH-ETH pool. If not, however, they have to use wrapped-stETH (wstETH) which doesn’t rebase. Unit price of wstETH increases with staking rewards. Lido’s wstETH sarted out worth about 1 ETH, but, at the time of writing this, it’s about 1.11 ETH.
Velodrome’s wstETH related stable pools were created with no particular concern for this gradual “depegging”. So, if you look at the reserves, you see far more WETH (sETH) than wstETH. These unbalanced pools are inefficient and have higher slippage compared to an ideal stableswap.
(But to some extent they are working as stable pools, so the intent of this article is that it would be fine if we re-create a “w”wstETH that becomes 1:1 with ETH every year or so.)
RAI, a free floating stablecoin, now worth about $2.77, but it is actually a dollar-stablecoin. In long term, the price changes depending on the relationship between the market price and the redemption price, however its relative price change against dollar was (only?) about 8% last year.
It can be said that RAI has as combination of challenges regarding integration into stableswap AMMs, both in terms of unit differences and gradual “depegging” like wstETH.
Current solutions are that AMMs change their balanced point equivalent to 1:1, to which the liquidity should be concentrated, based on some price inputs.
Curve v2 has internal price oracle derived from the past trades.
https://classic.curve.fi/files/crypto-pools-paper.pdf
Balancer’s MetaStable pool, Gamma (a Uniswap v3 manager), and RAI-3CRV (a custom Curve v1 pool) have external price inputs.
https://dev.balancer.fi/resources/deploy-pools-from-factory/creation/metastable-pool
https://docs.gamma.xyz/gamma/features/strategies#pegged-price-pegged
https://github.com/curvefi/curve-contract/pull/144
Above mentioned AMMs rebalance. It means the impermanent loss becomes permanent at every rebalance. The loss is path-dependent and cannot be assumed in advance by LPs.
Sure, it is reasonable to formulate rules like Curve v2, which rebalances gradually within the fee income earned while ensuring that the AMM’s invariant grows. However, it would be very difficult to get the average user to understand this rule.
A solution with wrapper tokens is very simple. Create a wrapper token so that at some point 1:1 and use it in stableswap AMMs as long as it is (almost) valid. In this case, AMMs don’t need rebalancing. So LPs can get an outlook like “if the price change by xxx%, the impermanent loss will be yyy%.” in advance.
LSDs and RAI can efficiently utilize ~100x amplification of stableswap AMMs for 0.5--1 years if the interest rates are less than 10%/yr. Forex between major fiat currencies may be able to do it for several months.
As for RAI, by wrapping it to about $1, the cost of explaining what kind of currency it is would be greatly reduced.
Liquidity of a token may be somewhat fragmented due to the various kind of the wrapper tokens, but it can be overcome by Dex aggregators like how they integrated numerous Uniswap pools. A wrapper is like a one-sided Uniswap pool.
Wrapper tokens are simple, but they have many usecases. A factory which makes it easy for anyone to create such tokens would be valuable.
Remember WOOFY?
Is treatment of decimals not so easy?
https://twitter.com/danrobinson/status/1561558549058166785?s=20&t=ZZ_Hna57YngHUrYh-MNhhA
Let’s think about how useful a generalized wrapper-token and its factory, if invented, are.
日本語版:
https://mirror.xyz/kyoro.eth/9zlEopd3vhJKx1IaNJjufgSjRi8JIdfFujhKYfbIjqY
Liquid Staking Derivatives (LSDs), including Lido’s stETH, have emerged, but handling them in stableswap AMMs needs some efforts.
Also, as more and more things are tokenized, there will be cases where stableswap AMMs will not be able to handle them just due to differences in their unit of measure. For example, gold-related tokens. Are they expressed in ounces or grams? Even the difference between grams and kilograms is problematic.
Just simple generalized wrapper-token (and its factory) may be useful for these issues.
A wrapper-token contract converts 1000 gGOLDTOKEN to 1 kgGOLEDTOKEN. Factory contract allows one to create such wrapper contracts with 2 inputs:
Address of a token which is going to be wrapped
Ratio of the wrapping
*This is just a design. I’m not developing/coding it.
Stableswap AMMs like Curve v1 and Velodrome stable pools assume tokens in the pool can be exchanged at ~1:1. Not feasible for other rates like 1:1000. Thus company A’s gram-gold-token and company B’s kilogram-gold-token cannot be handled by stableswap AMMs because they are in different units.
For LSDs, if DEXs support rebasing tokens, they can handle the stETH-ETH pool. If not, however, they have to use wrapped-stETH (wstETH) which doesn’t rebase. Unit price of wstETH increases with staking rewards. Lido’s wstETH sarted out worth about 1 ETH, but, at the time of writing this, it’s about 1.11 ETH.
Velodrome’s wstETH related stable pools were created with no particular concern for this gradual “depegging”. So, if you look at the reserves, you see far more WETH (sETH) than wstETH. These unbalanced pools are inefficient and have higher slippage compared to an ideal stableswap.
(But to some extent they are working as stable pools, so the intent of this article is that it would be fine if we re-create a “w”wstETH that becomes 1:1 with ETH every year or so.)
RAI, a free floating stablecoin, now worth about $2.77, but it is actually a dollar-stablecoin. In long term, the price changes depending on the relationship between the market price and the redemption price, however its relative price change against dollar was (only?) about 8% last year.
It can be said that RAI has as combination of challenges regarding integration into stableswap AMMs, both in terms of unit differences and gradual “depegging” like wstETH.
Current solutions are that AMMs change their balanced point equivalent to 1:1, to which the liquidity should be concentrated, based on some price inputs.
Curve v2 has internal price oracle derived from the past trades.
https://classic.curve.fi/files/crypto-pools-paper.pdf
Balancer’s MetaStable pool, Gamma (a Uniswap v3 manager), and RAI-3CRV (a custom Curve v1 pool) have external price inputs.
https://dev.balancer.fi/resources/deploy-pools-from-factory/creation/metastable-pool
https://docs.gamma.xyz/gamma/features/strategies#pegged-price-pegged
https://github.com/curvefi/curve-contract/pull/144
Above mentioned AMMs rebalance. It means the impermanent loss becomes permanent at every rebalance. The loss is path-dependent and cannot be assumed in advance by LPs.
Sure, it is reasonable to formulate rules like Curve v2, which rebalances gradually within the fee income earned while ensuring that the AMM’s invariant grows. However, it would be very difficult to get the average user to understand this rule.
A solution with wrapper tokens is very simple. Create a wrapper token so that at some point 1:1 and use it in stableswap AMMs as long as it is (almost) valid. In this case, AMMs don’t need rebalancing. So LPs can get an outlook like “if the price change by xxx%, the impermanent loss will be yyy%.” in advance.
LSDs and RAI can efficiently utilize ~100x amplification of stableswap AMMs for 0.5--1 years if the interest rates are less than 10%/yr. Forex between major fiat currencies may be able to do it for several months.
As for RAI, by wrapping it to about $1, the cost of explaining what kind of currency it is would be greatly reduced.
Liquidity of a token may be somewhat fragmented due to the various kind of the wrapper tokens, but it can be overcome by Dex aggregators like how they integrated numerous Uniswap pools. A wrapper is like a one-sided Uniswap pool.
Wrapper tokens are simple, but they have many usecases. A factory which makes it easy for anyone to create such tokens would be valuable.
Remember WOOFY?
Is treatment of decimals not so easy?
https://twitter.com/danrobinson/status/1561558549058166785?s=20&t=ZZ_Hna57YngHUrYh-MNhhA
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