Optimized Rebalancing with JIT

Uniswap V3 brought in new ways of managing liquidity, yet we haven't seen any consumer-focused vaults adopting impartial strategies for this.

The key reason is the added incentives offered by these vaults. When a vault provides extra rewards beyond what's earned from the usual market-making activities, most investors prefer to channel their funds through the vault to capture these bonuses. This makes the vault a more appealing option compared to directly participating in the market-making process.

The dynamics of that will be that the vault will become a significant % of the pool. Hence, if the vault strategist were to remove liquidity and rebalance the exposure by swapping on the pool then there would be massive slippage as the vault itself was the significant % of the pool.

This is where we bring in our active liquidity management infrastructure which will be paradigm-shifting in making defi efficient.

From the mountaintop of abstraction, what we are building is

Uniswap v3 + Hashflow Combined

We plan to merge the best features of both AMMs (Automated Market Makers) and RFQs (Request for Quote model) in a trustless and non-custodial manner.

To do so, we will be using JIT (Just in Time Liquidity) as a means for accessing RFQ liquidity, which provides the most capital-efficient solution by providing liquidity in narrow price ranges and actively rebalancing.

In the current model, if someone trades a significant amount on the Uniswap v3 pool, there will be significant slippage and the price will diverge from external liquidity venues.

For example, consider a vault provides liquidity to a CRV-USDC pool in the 0.50 to 1.00 USDC price range. When the price of CRV rises to 1 CRV = 1 USDC, then the vault’s position will be 100% USDC and 0% CRV.

At this point, ideally, the vault should rebalance by swapping USDC for CRV. But if Curve is offering liquidity mining incentives then most of the pool’s liquidity will be the vault itself. So, any swap on this pool will have massive slippages and in most situations won't be feasible.

With our JIT rebalancing infra, we will solve this by sourcing CRV liquidity on other venues through the sophisticated trading infrastructure of Private Market Makers (PMMs). CRV also trades on Binance, Curve etc, so through integration with PMMs, we can rebalance with low slippage but still be entirely trustless through a rebalancing bundle looking like this -

  1. PMM (Private Market Maker) adds JIT liquidity in a very narrow range (ideally inside a single tick) based on the quote they can offer by hedging on other venues.

  2. ALM (Active Liquidity Manager) then calls rebalance function swapping through this JIT liquidity enabling them to swap with low slippage.

  3. PMM then removes their JIT liquidity but would get the other asset and can finish their hedging and make a spread.

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