- Title: Promote UNI to collateral tier
- Author(s): Seraphim Czecker
- Submission Date: 03.03.2022
Simple Summary
Proposal includes a batch of changes to the Uniswap Governance Token (UNI) asset on Euler. These include: promotion of UNI to the collateral tier. Increase of UNI collateral factor to 0.66. Increase of UNI borrow factor to 0.76. Enable cross borrowing.
Abstract
This is a proposal to promote Uniswap Governance Token (UNI) to the collateral tier on Euler, enabling Euler users to borrow against it. UNI fits the collateral eligibility criteria of a collateral asset. It is backed by a robust oracle on Uniswap v3. It is widely distributed and decentralised. It has relatively high liquidity on numerous decentralised exchanges. Smart contract risk is relatively low. The proposal includes suggested increases to UNI’s borrow factor and enabling of cross tier borrowing. These changes would allow users to borrow more UNI, and bring Euler’s capital efficiency in line with competing protocols. On the upside, adding a new collateral asset to the protocol would increase capital efficiency and provide more utility for users. On the downside, adding a new collateral asset always introduces a degree of systemic risk. In the case of UNI, the benefits outweigh the potential risks.
Motivation
The goal of the proposal is to boost the capital efficiency and utility of the Euler protocol. The current risk factors on the protocol are purposefully restrictive as a part of Euler’s soft-launch in late Dec 2021. Since then, the protocol has performed well against a backdrop of extreme price volatility and a large number of liquidations across DeFi. Furthermore, there have been no reports of any critical bugs on the protocol in spite of a $1m public bug bounty being live for nearly a month. Promoting UNI to collateral status and amending borrow factors and is one of the first steps in ramping up capital efficiency in a risk-managed fashion on Euler.
Specification
- What is the link between the eIP author and the asset?
None. The proposer is the head of risk at Euler Finance and has no link to UNI.
- Provide a brief description of the asset
UNI is the governance token of the Uniswap Protocol: a leading DeFi AMM.
- How is the asset primarily used?
UNI is used primarily for governance purposes, namely:
- Uniswap governance
- Community treasury
- Protocol fee switch
- eth ENS
- Uniswap List
- SOCKS tokens
- Explain why the eIP would benefit Euler’s ecosystem?
UNI is an established asset in DeFi and listing it as collateral would allow users to tap into Euler’s capital efficiency without swapping it for the already-listed collateral assets like USDC, DAI and WETH.
- Where does the asset trade?
UNI trades on almost every major centralised exchange, including Binance, FTX, and Coinbase. It also has liquid markets on key decentralised exchanges, including Uniswap, Sushiswap, and Curve.
Consequently, it would allow liquidators to easily offload UNI on various CEXes and DEXes in the event of a liquidation spiral.
- What are the volumes and market capitalisation?
Market capitalisation is $6.5 billion with $150 million traded in the last 24h.
- What is the liquidity like in the Uniswap V3 liquidity pool versus ETH?
The 0.3% UNI/WETH Uniswap V3 pool is extremely liquid as it has a TVL of $25 million and, crucially, has full range liquidity.
- What security/auditing reports have been done?
Uniswap protocols have been audited by multiple teams of engineers like Consensys, dapp.org, Paradigm research team etc.
Implementation
| Contract | Method | Token | Token Name | Token Address | Updates |
|---|---|---|---|---|---|
| governance | setAssetConfig | UNI | Uniswap | 0x1f9840a85d5af5bf1d1762f925bdaddc4201f984 | borrowIsolated:false collateralFactor:0.66 borrowFactor:0.76 |
Risk Assessment
Oracle Grading
According to our inhouse research, meaningful attacks on the 0.3% UNI/WETH Uniswap V3 oracle appear unfeasible. The substantial TVL spread across the entire price range is able to prevent both artificially elevated and depressed oracle prices.
We therefore give UNI a strong oracle rating.
For more details, check out the full report.
Decentralisation
UNI scores well on decentralisation given 60% allocation to the community in the genesis allocation pie. As of now, it appears well-distributed amongst different holders on the blockchain as well.
Volatility
UNI/WETH annualised 30-day realised volatility fluctuates from 40-200%, which is manageable.
Liquidity
UNI is listed on practically all exchanges (both CeFi and DeFi) with most volumes occurring on Coinbase, Binance, FTX. Given the depth of liquidity pools and order books, it is unlikely that liquidating users in an adverse scenario will be challenging.
Smart Contract Risk
Uniswap protocols have been audited by multiple teams of engineers like Consensys, dapp.org, Paradigm research team etc. and are some of the most reputable DeFi solutions in the space.
Conclusion
UNI ranks high on oracle security, volatility, liquidity, decentralisation and smart contract risk. We therefore recommend implementing the proposed eIP.
Relevant Links
Oracle grading tool: https://oracle.euler.finance/
