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We’ve seen many strategic vaults built on prominent DeFi platforms. Orange Finance is also going to launch a strategic vault as a structured product protocol, which implements sophisticated financial strategies to offer a real-yield-grabbing opportunity to any DeFi user.
Orange Finance will be launched with an Automatic Liquidity-Management vault for Uniswap v3, offering a statistical liquidity strategy and hedging strategy. Now, why are we building Orange Finance on Uniswap rather than other DeFi platforms like Curve and GMX? Which platform is the best fee-generating platform?
Let’s look respectively at three notable DeFi protocols, Uniswap, Curve, and GMX, and compare them regarding TVL, fee revenue, and return.
Looking at the charts on DeFillama, each protocol has enormous TVL respectively as follows: $4b (Uniswap), $4.65b(Curve), and $638.43m(GMX) at the time of writing this post.
Looking at the chart below, Uniswap generates the highest fee among protocols, which has daily cumulative fees of $269.3m in 180 days, while $86m on GMX and $21.3m on Curve respectively.
Looking at the data from Crypto Fees, Uniswap again outperforms other protocols, both for 1-day fees and 7-day average fees.
The ETH-USDC pool alone is earning enough to catch up with Curve's overall revenue.
With respect to returns, if we simply calculate returns by Fee revenue/TVL using the above stats, users can earn around 27% APR for GLP on GMX ($172m/$638.43m), about 0.92% fee APR on Curve ($42.6m/$4.65b), and about 13.5% fee APR on Uniswap ($538.6m/$4b).
The above is a rough estimate for a quick comparison and the numbers may not be completely accurate, so let’s look at the shown APR at the time of writing this post.
The APR for GLP on GMX based on the currently displayed APR on their UI is actually around 25%, which roughly matches the simple calculation above.
On Curve, return varies across different pools, but currently, LPers can earn up to approximately 8.3% fee APY (+token incentives).
On Uniswap, it’s hard to say what fee APR you can expect in general, as there are innumerable pools with different assets. High APRs for minor pairs are most likely to be very temporary figures.
So, instead of just jumping conclusion that Uniswap offers really high fee APR, let’s look into the WETH-USDC pool on Arbitrum, which Orange Finance’s first vault will manage liquidity for.
Looking at DeFiLlama, the WETH-USDC pool (0.05%) generates 51.40% APR, which looks quite a juicy return, although returns aren’t distributed equally to all LPers but vary from LP to LP with different price range settings on Uniswap v3. Meanwhile, if we put it differently, you can earn an even higher APR by setting a narrow price range aggressively.
Orange Finance has chosen to build its strategic vault on Uniswap rather than on other DeFi platforms like Curve and GMX.
As demonstrated above, Uniswap is clearly the most profitable fee-generating protocol. However, it's important to note that fee APR cannot be regarded as profit and loss. LP value on Uniswap is volatile and fragile, and can easily lose value. As the price of underlying assets fluctuates, liquidity providers (LPs) may experience the impermanent loss that offsets their fee revenue. When the fee APR falls short of compensating for the loss, LPs may suffer a net loss.
Existing strategic vaults on Uniswap tend to opt for wider ranges that are better suited for managing volatility in the crypto market. Although this strategy can help avoid losses due to frequent rebalancing, its return is suboptimal and doesn't fully leverage the capital efficiency brought by Uni v3.
As mentioned in an earlier post, most strategic vaults on Uniswap v3 liquidity management protocols have resulted in less-than-optimal performance, while strategic vaults on other DeFi platforms like GMX and Curve provide a fairly well return to retail investors.
Orange Finance has chosen to build on Uniswap because we believe it offers the best yield-generating opportunity to retail users as long as we could mitigate the losses on LP value.
To address this issue, Orange Finance has developed a liquidity management vault with a delta hedging strategy. Our vault offsets LP losses incurred due to price movements and frequent rebalancing by taking a short position on ETH on Aave.
Moreover, with the delta hedging strategy, Orange Finance is able to offer a narrower and more capital-efficient price range, resulting in higher trading fees for LPs.
What if you could get higher fee returns with an aggressively narrow range while avoiding losses due to the price volatility of the underlying assets?
By leveraging our expertise in liquidity management and delta hedging strategies, we aim to provide the highest return opportunity to retail users, and we believe that building Orange Finance on Uniswap will help keep the protocol at the forefront of DeFi growth by attracting liquidity to the platform.
Orange Finance is an Automatic Liquidity-Management protocol for concentrated liquidity-type DEXes such as Uniswap v3, maximizing the capital efficiency of Uniswap v3 by maintaining an efficient price range through the use of statistical modeling and delta hedging strategies.
Effortless Liquidity Management on LPDfi protocols
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