Two New Features Launched to Test Liquidity Management on Uniswap v3

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Two New Features Launched to Test Liquidity Management on Uniswap v3

The Sommelier team continues to work to bring new Co-processor functionality to the Ethereum ecosystem. The Uniswap v3 Pairings and Position Manager app saw over $8MM in liquidity volume from May through July. We are grateful to our community of liquidity providers who used these tools and helped us understand how Sommelier can add the most value to liquidity providers. The team focus now moves to the launch of the Sommelier blockchain and the first validator-managed DeFi application, Sommelier Cellars.

Today, we celebrate more engineering progress on the road to mainnet with the live deployment of the first mainnet Ethereum contract for Sommelier Cellars and the live test of two functions: “Add Liquidity” and “Rebalance Liquidity”. These functions were successfully tested across multiple Uniswap v3 ranges. We also celebrate the success of Sommelier’s testnet with five external validators that are working to verify that Sommelier is ready to upgrade to mainnet and onboard many new validators from the community.

Below, we share two key features and the lessons learned of the Sommelier cellars that are under active mainnet testing.

Feature 1: Volume & Volatility Range Predictions

Sommelier’s Cellars for AMM Liquidity Providers are powered by Sommelier’s strategy to predict time-independent, Uniswap tick ranges with the highest volume opportunities for maximum fee generation. Sommelier’s first cellars will launch on Uniswap v3 and then to other range order type AMMs. Sommelier’s prediction model selects up to 13 tick ranges on the Uniswap v3 ETH-USDT Pool. Sommelier’s strategy maximizes a prediction of future price ranges based on prior volume and volatility, independent of time.

However, in order to execute these predictions on Ethereum, Sommelier blockchain validators require control code that manages the execution of liquidity transactions. Below we share more about those features that were launched on the Ethereum mainnet for testing.

Feature 2: Add Liquidity and Rebalance

How do Sommelier validators know that the Ethereum contracts they are controlling actually do what they should do? This past week, Sommelier co-founder, Zaki Manian built a Rust, Ethereum contract controller that would take a series of Uniswap v3 range positions and execute liquidity management transactions on behalf of Sommelier cellar members.This tool is designed to enable the prototyping of new APY oracles that can run in the validator software.. Using a data feed of tick range predictions, the Sommelier chain validators would seek to capture fee revenue opportunities by executing signed transactions to move liquidity between ranges on Uniswap v3. Successful execution would result in multiple Uniswap v3 transactions executed at the appropriate time. Below we share the progress of Zaki’s effort to test these capabilities.

Validators running the Sommelier blockchain and Gravity bridge to the Ethereum blockchain will be directed to execute transactions on Ethereum and control the Cellar contract. Sommelier deployed its first test cellar contract at https://etherscan.io/address/0x2Ee100fDb3A86b5C163f51daa2449Af1bD0C388d. This is the first Cellar contract for Sommelier and will make up the first contract that will launch with mainnet. The Cellar contract focuses on the ETH-USDT pair. The code for the Rust Cellar Rebalancer controller here: https://github.com/PeggyJV/cellar_rebalancer_rs and we saw the first successful cellar transactions this week when 7 range positions were created on the ETH-USDT pair. The transaction is here:

https://etherscan.io/tx/0x2b47011bb445e217307d0f143789a026ce2774ddd09dc0378d8627a39dfbe9f2

The historical transaction of an automated system creating a series of range positions on Uniswap v3 is a major step ahead for Sommelier.

Once the liquidity addition function was successful, the next step would be to test the rebalance function that would remove liquidity from the current ranges and then add that liquidity, including fees, to a new set of ranges. Tests of the rebalance Cellar functionality were successful as well. The Sommelier cellar contract removed the liquidity of the prior predicted ranges and minted new NFLPs to add the liquidity into. The successful transactions that added the new liquidity positions could be seen on Etherscan at https://etherscan.io/tx/0xc0c38c12cee4e6fd20d981c28262a53e0196f1fc3e67c827355102cfe73168ff.

Lessons Learned and Conclusion

Sampling any of the newly created Uniswap v3 range positions of the contract rebalance above show that they are all out of range. Looking at the Time independent Bollinger band model for Sommelier’s test cellars, we notice that the Ethereum price breaks beyond the range of predictions of the model. This activity is possibly due to the Ethereum London hard fork expectations for price appreciation of ETH due to EIP1559. See the charge below for a 15-range model breaks out over the first days of August as anticipation of the London Hard fork grows.

Source: VolumeFi volatility analysis.

The Sommelier ETH-USDT Cellar contracts themselves also require upgrades to increase liquidity movement efficiency as well as increased review of possible issues that may arise from possible flash loan attacks. Sommelier expects to deploy upgraded contracts and submit new contracts for additional audit review.

Zaki and the Sommelier team continue on the road to mainnet with the continued testing of Sommelier cellars, the Uniswap v3 active management system. We’re excited to be part of the many quality projects supplying new ways for liquidity providers to maximize revenues and yield on Ethereum blockchain.

Look out for our upgrades of the Sommelier Cellar contract as we continue to document the road to mainnet. If you have any thoughts or questions, please join us on either our telegram community at: https://t.me/getsomm or our Discord channel at https://discord.gg/czysYtWyzY. We will respond quickly and engage.