Note: This excerpt is the fifth article of the series “Explaining the Pilot Protocol”. Read the previous article “How Unipilot is different from its competitors”.
In the last article, we talked about how Unipilot is different from its competitors, in this article we will talk about the potential market size of Unipilot.
This is going to be an interesting article from an investment point of view, be sure to read along.
The concept of liquidity concentration coined by Uniswap v3 is gaining traction all over the DeFi space. The liquidity growth on Uniswap v3 has been immense, within two months of launch the decentralized exchange has already crossed over $1.5 billion in terms of total value locked. In addition to that, the daily trading volume averages around $1 billion, which further shows the extensive usage of the platform.
As described in previous articles, Unipilot would serve as a catalyst to the concentrated liquidity mechanism introduced by Uniswap. It will automate the liquidity management process, maximize capital efficiency and minimize the risk of inactive liquidity for the user.
However, for a sound implementation of the idea, it is necessary to:
- Study the overall feasibility of the project.
- Understand the possible growth avenues and ensure the long-term sustainability of the index fund.
- Account for both business and user’s perspective.
For this purpose, we ran some simulations and devised a viable set of projections.
Projections for Uniswap
Since Unipilot serves as a handy tool for users who want to provide liquidity on Uniswap v3, our goal is to penetrate the market by capturing a certain percentage of the overall fee generated on Uniswap.
Initially, we want to capture 10% of Uniswap’s overall market including V2 and V3, the monthly additions to the index fund would be around $13.5 million (see figure 2) and yearly additions would be around $171.85 million.
However, there are a certain set of fixed parameters behind these figures:
- Since Unipilot offers multiple fee withdrawal options, it is assumed that 50% of the people will withdraw their fees in $PILOT tokens and 50% will withdraw in normal LP tokens.
- The Uniswap fee tier is fixed at 0.3%.
Interested in the above protocol-specific terminologies, read the article: “The Pilot Protocol”
Let’s try and understand the calculation through a hypothetical example:
Suppose Uniswap accumulates $1000 worth of fees in a month and 10% of this fee which is $100 is generated by LPs providing liquidity through Unipilot.
Now suppose 50% of the LPs opt to withdraw their fees in $PILOT tokens and 50% opt to withdraw it in LP tokens.
In the former case, $50 worth of fees in LP tokens would be sent to the index fund and in the latter case, $7.5 ($50 ✖ 15%) vault fare would be sent to the index fund.
The total amount accumulated by the index fund would be $57.5
Projections for all DEXes
Uniswap v3 has revolutionized the entire concept of liquidity farming and considering the massive adoption of the AMM in such a short time period, we expect that sooner or later other AMMs are also going to follow the model. For this purpose, Unipilot will be integrated with all other decentralized exchanges that may launch the concentrated liquidity function in near future.
To understand the liquidity market in longevity, we made some projections for decentralized exchanges such as Balancer, Sushiswap, and Curve Finance. The assumptions for all the DEXes are kept the same and the token values going into the index fund are aggregated.
After a careful analysis of the projections cited above, it is pretty evident that the vision of Unipilot is much bigger than an ordinary DeFi project.
The changing market dynamics are in favor of the current functionality of the protocol and the financial simulations further ensure that the protocol is bound to achieve supernormal growth and long-term sustainability.
With a goal of getting into the top 50 tokens/coins and achieving a TVL of $1B+, Unipilot is all set to launch.