Gelato Network, the Ethereum-focused protocol, has released the details of their “G-UNI” Uniswap v3 management system to maintain a liquidity range of 5-10% with an oracle network checking prices and rebalancing liquidity pool position ranges every half hour.
It has been reported that G-UNI also automatically re-invests trading fees for compounding returns. While Uniswap’s highly-touted v3 has been racing to the top of TVL charts as of late, the need for active management has kept some retail participants out of their pools, a problem that a new product from the Gelato Network is aiming to fix.
The blog post reads:
“Passive G-UNIs work by just providing very broad liquidity, similar to Uniswap v2 that never has to be changed. It thus can be completely free of anyone’s control as it does not require changes in its price range.”
However, it opens them up to the risk of impermanent loss if the prices of the trading pair move beyond the provider's specified range while Uniswap v3 allows liquidity providers to earn more fees by concentrating their funds at specific prices.
G-UNI’s auto rebalancing brings the benefits of concentrated liquidity, but with the option of passively managing the position in a manner more in line with Uniswap v2.
The report stated:
“The advantage of this includes that users can sit back and relax as all the difficulties that come with monitoring LP positions are taken care of.”
Likewise, the real benefits of G-UNI might be for other DeFi protocols while the new tool will be a boon to passive liquidity providers. A self-described “Legendary Member” of Gelato, Hilmar, noted that projects can now incentivize concentrated liquidity in “pool 2” liquidity pools. Pool 2 is a colloquialism for a native governance asset paired with a popular base asset, such as ETH or MATIC.
G-UNI is an ERC-20 token as opposed to an NFT, which opens it up to a broader number of possible applications in DeFi. Many lending platforms accept liquidity pool tokens as collateral, but aren't yet widely prepared for positions represented as NFTs; G-UNI will allow them to onboard v3 liquidity positions faster. Likewise, yield vaults like Yearn.Finance, which has been planning to incorporate exchange positions for some time, may find it easier to integrate ERC-20s.
Thus, G-UNI will be used out of the gate as part of the launch of Instadapp’s governance token. The team is setting aside 1,000,000 INST tokens for INST/ETH liquidity mining, with 3/4ths of the rewards focused on a higher INST price liquidity range.