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Uniswap v4's recent introduction has opened up a world of exciting possibilities for the DeFi space. One of the most innovative concepts to emerge is the idea of an oracleless lending protocol built on top of Uniswap v4. Instadapp, a pioneering platform, has been hard at work devising a groundbreaking lending protocol that takes full advantage of Uniswap v4's unique liquidity range model, especially with the introduction of “inverse range orders.” This new feature changes the game by offering unparalleled advantages for users and liquidity providers (LPs) alike.
Uniswap v4 Hooks: Enhancing FunctionalityUniswap v4 introduces a remarkable feature known as “hooks,” which enhances the functionality of its two-token pools. These hooks allow for the inclusion of code before and after swaps or during liquidity updates. This powerful addition amplifies the adaptability and functionality of Uniswap v4, paving the way for innovative use cases and easier integration with additional protocols.With hooks, LPs are no longer passive participants but active members of the DeFi ecosystem, capable of providing liquidity while participating in other protocols.
1. Building the ProtocolInstadapp’s innovative concept involves creating an oracleless lending protocol on top of Uniswap v4 by leveraging the unique liquidity range model. This enables LPs to earn additional income through a liquidation penalty rate from borrowers, increasing their overall earnings and attractiveness as liquidity providers.2. Uniswap v4's Inverse Range OrdersThe introduction of “inverse range orders” in Uniswap v4 changes the game for lending protocols. These orders act as a negative position or “reserve,” effectively enabling an oracleless position. This means that the protocol no longer relies on external oracles, eliminating the risks associated with oracle manipulation.
1. Flexible Liquidation Threshold (LT)Users have the flexibility to decide their Liquidation Threshold, ranging from 50% to 99%. The borrow rate is proportional to the LT, allowing safer users to pay less to borrow compared to riskier counterparts. The introduction of inverse range orders makes the 99% LT possible, offering unmatched security and control to borrowers.2. Boosted Income for Uniswap’s LPsUniswap LPs can now earn additional income through the liquidation penalty rate from borrowers. This creates an incentive for LPs to participate in the lending protocol, further increasing their earnings.3. Oracleless Protocol with 0% Liquidation PenaltyThe absence of a liquidation penalty means that positions will “decay” and lose collateral over time instead of incurring penalties. This eliminates any incentives for manipulators and reduces risks for borrowers.4. Transient LiquidationA unique feature of the protocol is “Transient Liquidation,” where if the price of collateral goes down temporarily but returns to its original price, the position’s original value is restored. This results in minimal losses through the liquidation penalty rate for the time the position was underwater.
1. Handling Manipulation AttemptsThe protocol effectively addresses manipulation attempts by ensuring manipulators do not receive any incentives. Borrowers may incur minimal penalties during this short period, but overall, the manipulator ends up paying more fees on trades than the borrower’s penalty.2. Dealing with Price FluctuationsMarket price changes can cause positions to fall into a liquidation state. In such cases, if the price returns to its previous values, the position incurs minimal losses through the penalty rate, termed as “Transient Liquidation.”3. Net Liquidity and LP WithdrawalsNet liquidity is the remaining liquidity after offsetting LPs’ range orders with borrower’s inverse range orders. LPs can withdraw excess liquidity, but not all LPs can withdraw at once, ensuring a balance and attracting more liquidity to the protocol.
Revenue Streams for LPsAn Uniswap v4-based lending protocol creates three revenue streams for LPs: trading fees, penalty rate, and lending out-of-range liquidity. These additional income streams make Uniswap an even more attractive protocol for liquidity providers.Uniswap v4's introduction has ushered in a new era of possibilities for the DeFi space. Instadapp’s visionary concept of an oracleless lending protocol built on top of Uniswap v4 takes full advantage of its unique liquidity range model. By offering flexible liquidation thresholds, boosted income for LPs, and eliminating the need for oracles, this protocol revolutionizes the DeFi lending landscape. As Uniswap v4 and its innovative features continue to evolve, the future looks brighter than ever for non-custodial finance, with oracleless lending at the forefront of this groundbreaking movement.