What exactly is Unipilot?

Note: This excerpt represents the first part of the article series: ‘Explaining the Pilot Protocol”. As we progress through this series, we will explain more about the Pilot protocol from its technicalities, additional features, and existing framework to the broader vision that it aims to achieve.
The next article in particular will discuss the technical aspect of the protocol along with some of its
game-changing features.

Let’s Start from the beginning

The radical innovation in the blockchain industry continues to propel as Uniswap- one of the top decentralized exchanges operating in the DeFi space launches version 3.0 of its protocol. Uniswap v3 allows liquidity providers to concentrate their capital in custom price ranges.
This not only ensures effective utilization of the liquidity invested but also offers greater control to liquidity providers in allocating their capital.

In addition to that, the amount of capital at risk is far less as compared to Uniswap v2 since the price ranges are narrow and there is a better chance of getting a greater proportion of the overall liquidity utilized in terms of retail trades.

Prior to the launch of Uniswap v3, liquidity providers had to spread their liquidity over the entire price curve from zero to infinity which not only resulted in lesser percentage returns but also required higher capital.

The inception of Uniswap v3 has provided a whole new avenue of yield farming to liquidity providers. Through the concentrated liquidity mechanism, liquidity providers can earn significantly higher amounts of returns on their investments while having full control over the deployment of their funds.

The idea

There is no denying the fact that the concept of ‘Concentrated Liquidity’ promises more enticing returns to liquidity providers than the previous version of the protocol.
However, ‘there is no such thing as free lunch’, to achieve these attractive returns liquidity providers have to constantly oversee and manage their capital.

They have to readjust their positions by adding or removing liquidity every time the active price falls out of the concentrated liquidity range. The readjustment not only requires constant manual oversight but it also involves high transaction costs and with regular price fluctuations in the market, liquidity providers will still have to lock large amounts of capital to keep earning fees.

The only way liquidity providers on Uniswap v3 can achieve these attractive returns is when someone else manages their capital for them and this is where our protocol comes into play.

Here comes Unipilot

Unipilot saves liquidity providers from the hassle of manual oversight through automated liquidity optimization and management.

The aim of the Pilot protocol is to ensure maximum capital efficiency by allocating the right mix of capital to each of Uniswap’s liquidity pools existing on its platform.

The challenge with concentrated liquidity is keeping it in the active price range so that it consistently earns fees through trades. The more time the capital is locked in the active price range the more trading fees it earns.

If price fluctuates and capital goes out of the price range it does not earn any fees. Unipilot solves this problem by allocating capital to the narrowest price range to earn the maximum amount of fees. Even minor optimizations in price ranges can impose drastic changes in terms of capital efficiency.

Apart from offering optimized liquidity positions, the Pilot protocol also auto-rebalances liquidity in appropriate price ranges to cater to the changing market prices.
In addition to that, the transaction cost involved with readjusting liquidity is also disbursed by the protocol so liquidity providers don't have to worry about the increasing gas costs on Ethereum.

Universal Liquidity Optimization

Uniswap v3 has introduced a breakthrough design improvement in the form of ‘Concentrated liquidity’ in the automated market-making (AMM) ecosystem. With the traction that liquidity farming has gained within a month, we can assume other decentralized exchanges following the same model in the near future.
For this purpose, we introduce the concept of universal liquidity optimization which indicates that the protocol will be compatible with all other AMM’s that may adopt the concentration liquidity mechanisms in future.

TLDR

Unipilot serves as an investment manager for all the liquidity providers who want to invest their capital in Uniswap v3 while avoiding manual oversight and other added complexities of the protocol.
With Unipilot, these liquidity providers can deposit their assets, choose the desired pair of tokens they want to provide liquidity for and the protocol will deploy their capital accordingly. Once the capital is deployed, the protocol continuously optimizes liquidity positions and automatically rebalances them as per the market movements and risk appetite of the liquidity provider.

Next Steps:

Here are some quick links to get updated with the happenings in Pilot Protocol.

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Get The Most From Your Liquidity

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Get The Most From Your Liquidity

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