ARC - Add Uniswap V2 DPI-ETH LP to Aave AMM

Summary

We propose listing the Uniswap V2 DPI-ETH LP token as collateral on Aave AMM. Aave would be the first lending protocol to integrate the Uniswap V2 DPI-ETH LP token into its platform.

Motivation

Launched in October 2020 by Index Coop, DPI has grown to over $200M and is currently the most widely traded index product on ethereum. The main liquidity pool for DPI-ETH is on Uniswap V2 with ~$55M of capital deposited into the pool earning ~16.5% per annum in trading fee income.

The DPI-ETH pair is a low volatility pair making the LP token ideal collateral on Aave AMM. DPI-ETH is the 16th largest pool listed Uniswap V2 and is capable of supporting a $184.5K trade for 1% slippage. This is significantly deeper liquidity relative to a number of leading DeFi protocol tokens already listed on Aave AMM.

At the time of writing DPI comprises 20.88% AAVE tokens and the DPI-ETH LP token 10.44% AAVE. Adding DPI-ETH LP tokens as collateral would bring users into the Aave AMM ecosystem allowing capital, yield and value to accrue to Aave participants.

Specification

Details on DPI the asset can be found on the ARC: Add support for DeFi Pulse Index (DPI) forum post. DPI-ETH has a Chainlink oracle. DPI-ETH LP token price data can be obtained from etherscan.

DPI-ETH Chainlink Oracle: Ethereum Price Feeds | Chainlink Documentation

Currently, Index Coop offers liquidity mining rewards for depositing the DPI-ETH LP token into a staking contract via the Index Coop website. Liquidity mining rewards are currently 12.4% at the time of writing in addition to ~16.5% trading fee income.

As DPI-ETH has no governance voting power and the emission schedule of the LP token is determined by users depositing into the Uniswap V2 liquidity pool. Currently, Aave AMM will be the first lending protocol to accept DPI-ETH LP token as collateral. There is no multisig controlling the trustless Uniswap V2 pool.

Technical Specification

DPI-ETH LP token - Aave Risk Assessment

The Uniswap V2 DPI-ETH pool has a 7-day average trading volume of $10.9M, ~$55M of liquidity and the pool was seeded 6th October 2020, 262 days prior to 1st June 2021.

There are over 900 unique holders of 23,324 DPI-ETH LP units, of which ~700 unique holders have deposited ~94.4% of the circulating supply into Index Coop’s staking contract. Etherscan shows 36,637 transfers of the DPI-ETH LP token.

DPI the asset has an overall risk score of B and Uniswap V2 DPI-ETH LP has marginally better risk score of B+. Referring to AMM-Market documentation, this assessment is aligned with AAVE, UNI, MKR, SNX and YFI which all experienced improving risk scores on AMM relative to Aave V2.

Using equations cited below, the following volatility statistics have been calculated for the LP tokens USD value.

DPI-ETH LP 7 days volatility = 0.0712

DPI-ETH LP 30 days volatility = 0.0558

DPI-ETH LP 90 days volatility = 0.0644

DPI-ETH LP 180 days volatility = 0.0632

Risk Parameters

The risk parameters mentioned above are in line with other LP tokens like Uniswap and Maker. Aave documentation states the Liquidation Bonus is set at 15% for all LP tokens. The LTV & Liquidation Threshold parameters are derived from DPI’s risk assessment.

Further reference material on DPI can be found on ARC: Add support for DeFi Pulse Index (DPI)

Author

@MatthewGraham - I go by :fire:Fire :fire: on discord and I am a contributor at Index Coop.

Proposal Power

I am glad to announce Index Coop has created a proposal power delegation address to get DPI listed on Aave V2.

For AAVE holders that would like to show support for listing Uniswap V2 DPI-ETH LP on Aave AMM, please delegate your proposal powers to the following address.

0x1870D5Be439E3cB1aeCFf581d6572066e5098eAA

Thank you in advance for your support :)

16 Likes

100% in support of this proposal - would love to see DPI on Aave as soon as possible.

6 Likes

Thanks for the detailed write up @MatthewGraham. DPI seems a sensible inclusion on Aave given its size and risk profile.

4 Likes

This just makes sense.

4 Likes

Really excited about this! Would love to see this happen.

3 Likes

LP tokens as collateral are one of the great DeFi possibilities as I see it. In this case, using a solid and low volatility pair is very compelling - great write up. Would be happy to see this go forward.

2 Likes

I can’t seem to find those equations, could you help me please?

I would expect underlying DeFI tokens of DPI to be strongly correlated with ETH, so DPI-ETH pair to have roughly same volatility as ETH. Is that really “low volatility”?

Hi @haave,

Happy to help :slight_smile:

I performed the following steps in calculating the values presented in the post:

  1. Determine DPI-ETH LP tokens value in USD
  2. Apply ln(close(t+1)/close(t))
    where t is days
  3. Calculate the standard deviation by using the stdev formula in excel over the specified time period

The ETH volatility data can be found here: Methodology - Risk

We published this article in February on our substack which you may find interesting. The article compares, DPI, ETH and BTC on a few statistical measures.

3 Likes

So, the main ask here is for AAVE holders to delegate for this to the proposal power address? And then it can be listed?