Uniswap Max

Experience the ultimate liquidity and advanced trading platform on top of Uniswap V3, with modern trading tools and margin trading available on all token pairs.

Comment

⚡ Live demo on Ethereum mainnet fork : uniswap-max.vercel.app

📋 Code base contracts/front : github.com/orgs/Los-Byzantinos

Abstract

When building a decentralized exchange, the hardest part is attracting liquidity. Every cutting-edge, little-known DEX has liquidity problems that put them in a vicious cycle: No users → No liquidity → No transaction volume → No reputation → So no liquidity → So no users.

DeFi's composability makes it possible to benefit from the liquidity of other protocols, so why start from scratch? Removing the liquidity problem will make these types of DEXes attractive from the start and eventually attract users.

Uniswap Max aims to solve this problem. By leveraging Chainlink price feeds, we supercharged Uniswap V3 by implementing high liquidity modern trading tools on top of it:

  • Limit Order
  • Stop Loss
  • Margin trading
    • Long / Short
    • Leverage

What’s new for traders with Uniswap Max ?

Our protocol architecture allows margin trading on any asset that has a XXX/ETH Chainlink price feed. (and XXX need to have enough liquidity on its liquidity pool)

For example, someone can open a 3x short position on WBTC/LINK with a stop loss and a limit order (take profit).

The trader can basically create the margin product of his dreams. This makes Uniswap Max quite unique and attractive when someone wants to trade on atypical pairs.

Tech Stack

Smart Contracts

We used the foundry framework and deploying on an Uniswap V3 compatible chain.

Contract name Description Fork/Inspiration/Library
Positions.sol Positions recorder/main contract OZ ERC721
Market.sol Global protocol interface -
LiquidityPool.sol Liquidity pool for leverage and short position one liquidity pool for each token Solmate ERC4626
LiquidityPoolFactory.sol Interface the create LiquidityPoolXXX -
PriceFeed.sol The price feed Chainlink data feed
UniswapV3Helper.sol Helper for managing liquidity and swap on Uniswap Uniswap Doc

Untitled

Positions

The Positions.sol contract is the main contract and is owned by the Market.sol contract. The user is able to personalize his position with stop loss, limit order and/or margin trading (short, leverage). For example, this composability allows to create a leveraged short with a take profit and a stop loss.

The user receive an NFT representing his position.

Liquidations

For a leveraged position, we need to be sure that the position will be liquidated before the breakeven limit, so we decided to rely on a fixed monetary incentive, which is taken from the trader when the position is opened, and then given to the liquidator when the position is liquidated.

For each margin position there will be a spread between the break-even price and the liquidation price. Through this really simple mechanism, liquidators are incentivized to liquidate positions quickly in order to earn the liquidation reward first, helping the protocol to remain solvent.

This reward is taken from the trader's initial deposit and returned if the liquidation doesn't occur. Of course, the reward should be adjusted depending on the network gas fees.

A position is liquidable when :

  • This Limit Order is reached
  • The Stop Loss is reached
  • The liquidation price is crossed (acts like an automatic stop loss. Only for margin trading positions)

Untitled

Liquidity providers

LiquidityPoolXXX.sol will produce a yield for liquidity providers.

The yield will come from margin trading fees :

  • Opening a position costs assets borrowed * 0.2%
  • Borrowing fee taken every hours : (assets borrowed / total assets in pool) * 0.01% (fixed at the position opening)

NB : there are no fees for classic positions.

Market

The Market.sol contract will be the only entry point for all entities:

  • The Trader : will be able to open, close and edit his positions.
  • The Liquidity provider : will be allowed to provide liquidity.
  • The Liquidator: will be able to liquidate the trader's position for a reward.
  • The Admin : will be able to create a new pool

Frontend

How it works

By leveraging the Chainlink price feed, we will supercharge Uniswap V3 by implementing high liquidity modern trading tools on top of the protocol:

  • Limit Order
  • Stop Loss
  • Margin trading
    • Long / Short
    • Leverage

Limit Order

Create a liquidity position that can be liquidated when the position crosses from one asset to another.

Stop Loss

Sell the market when the stop price is triggered.

Market Order (Classic Swap)

Redirect to the native Uniswap interface.

Leveraged Position (Long/Short)

In order to offer margin trading, we need to create pools that allow anyone to provide liquidity. Then the liquidity providers earn an APY from the fees collected from the traders.

The protocol manages liquidation to stay solvent and provide stable income for the liquidity providers.

Untitled

The user open a long position by sending the base token and open a short position by sending the quote token. (see figure below)

When longing, we need to borrow the quote token from liquidityPool

When shorting, we need to borrow the base token from liquidityPool

The oracle

We leveraged the Chainlink price feed to effectively monitor position collateralization. To ensure seamless trading on Uniswap Max, we establish our own reliable price feed for custom pairs by using XXX/ETH chainlink price feed. This approach mandates the existence of a corresponding Chainlink price feed (XXX/ETH) for both tokens within the trading pair.

By integrating the Chainlink price feed, we gain access to accurate and up-to-date market prices, which are crucial for determining the collateralization status of positions.

However, since the Oracle uses a market average from multiple data sources, the value returned may be decorellated from the Uniswap price, resulting in a potential bad debt creation.

Here are some points to mitigate this problem:

  • Uniswap is the most liquid DEX. We can expect the price to be close to the market average.
  • For margin trading, we will focus on high liquidity asset in the first place to improve liquidations.
  • Since the liquidation reward is a fixed amount, the liquidator will be incentivized to close the position as soon as possible.
  • If it's not enough, unfortunately someone will have to take the loss and it will be the liquidity pool.

Position examples

Note that it’s not mandatory to configure a stop loss or a limit order. Traders can customize their trade as they wish. Some example below:

The classic buy position

Untitled

Leveraged x2 long

Untitled

Leveraged x2 short

Untitled

About the project

Challenges we ran into

We think the most difficult part was to build the interface with Uniswap. DeFi's composability is a strength, but it's also very difficult to implement. Part of uniswap's documentation was wrong, which cost us a lot of time.

Another major challenge was the synthesis of all trading functions into the openPosition() and closePosition() functions. These two functions encompass a wide range of functionalities, including stop losses, limit orders (with the creation of a Uniswap V3 liquidity position), leverage and short selling (that borrow from liquidity pools). By simply modifying the parameters of these functions, the trader gains the ability to tailor his position precisely to his preferences.

Accomplishments that we're proud of

We think that this kind of project, which combines DeFi and composability with other protocols, are the most difficult to build. Moreover, this project deal with: tokens (ERC20), liquidity pools / vaults (ERC4626), NFTs (ERC721), Chainlink price feeds and Uniswap interfacing. We learnt a lot!

To have reached the end is already a great achievement.

Things to change

Features to add

  • Be able to fully edit a position
  • Improve the front-end interface
  • Auto select the fee of the V3pool you are trading with the best liquidity

Already known bugs

  • Pools are flash loanable to reduce the borrowing fee : compute fees using a snapshot of the past
  • The liquidation price is not adjusted when fees are taken
  • For L2 deployments we will need to re-write de oracle interface
  • Rounding error on the hourly fee for small positions
  • We need to study more the protocol behavior for low liquidity pairs
  • No slippage limit : set up a slippage limit strategy in UniswapV3Helper.sol
  • The protocol does not work with tokens having an odd number of decimals
  • Some features can be moved off chain : PnL calculations, trader positions list

References

Helper

https://www.openzeppelin.com/contracts

https://github.com/transmissions11/solmate/blob/main/src/mixins/ERC4626.sol

https://www.rainbowkit.com/

https://data.chain.link/

Uniswap

https://uniswap.org/whitepaper-v3.pdf

https://docs.uniswap.org/contracts/v3/guides/providing-liquidity/the-full-contract

https://docs.uniswap.org/contracts/v3/guides/swaps/single-swaps

Built With

  • chainlink
  • erc4626
  • evm
  • foundry
  • nextjs
  • nft
  • solidity
  • uniswapv3
Share this project:

Updates