An autonomous, crowdsourced liquidity allocation protocol built for developers
Hi everyone! We’re glad you found us. It’s been a few very busy weeks for the team at Aloe, but we’re finally ready to share our plans for the best Uniswap V3 liquidity allocation protocol. What does that mean? We’ll explain, but first, some background…
When you deposit liquidity to Uniswap V2, you receive fungible (ERC20) tokens representing your position. This makes positions interoperable with the broader DeFi ecosystem — you might deposit into a liquidity mining contract, add collateral at AAVE and Maker, or use some other fancy protocol.
This works because Uniswap V2 positions are distinguished only by address and magnitude. That changes with Uniswap V3, where positions are distinguished by address, magnitude, and upper/lower price bounds. The new design allows liquidity to be concentrated, which means lower slippage for traders and higher earnings for liquidity providers.
Unfortunately, these features come with a price: for maximum effectiveness, liquidity will need to be actively managed, and by default it’s represented by non-fungible tokens (ERC721). This ruins the “set and forget” mentality associated with Uniswap V2, and breaks compatibility with any ERC20-based platform. Aloe solves these problems!
What is Aloe?
Aloe is an autonomous, crowdsourced liquidity allocation protocol for Uniswap V3. From a liquidity provider’s perspective, it’ll make V3 feel like V2 — deposit to Aloe at any price point and receive ERC20 tokens representing your portion of the pool.
How does this work?
We want to be honest with you. While we’re proud to announce Aloe to the world, we still have lots of math to do and many simulations to run. The mechanics described here are subject to change.
Behind the scenes, liquidity is managed by stakers. Anyone can become a staker, and their job is to submit proposals. A proposal is a normal distribution (mean & standard deviation) that characterizes the price range in which the staker believes trading will take place over the next hour. To measure confidence in those beliefs, each staker locks in some stake, denominated in our utility token, ALOE.
Once everyone has had a chance to submit proposals, Aloe combines them into a global position and rebalances the pool’s liquidity accordingly. After an hour, real trading volumes are compared to each staker’s proposal. This allows Aloe to redistribute staked tokens proportional to proposal accuracies. Basically, the most accurate staker will see their stake grow, while less accurate stakers will have their stake slashed. If you’re familiar with the Numerai competition, this is similar.
A note on rebalances
Rebalances may require swapping one asset for another. Since we make no assumptions as to the ratio of [Aloe liquidity] : [other liquidity] in a given pair, we can’t rely on Uniswap for these swaps — slippage could be enormous. As such, we plan to rebalance via Dutch Auctions, similar to Set Protocol. We will release details in a separate post.
Initial distribution of ALOE
ALOE is primarily a utility token for stakers, but will also serve as the protocol’s governance token. 70% of the supply will be distributed to users, and 25% will be retained by the Aloe team. At launch, we will open-source a basic staking bot and allocate 5% of the ALOE supply to its predictions.
The outline below represents our internal goals for Aloe. That said, we’re a small team, and things may take longer than expected. We would rather give you a polished protocol than a rushed one.
- April 26: Launch announcement
- May 5: Technical update on the mathematics of staking & rebalancing
- May 15: Deploy contracts to 1 or more testnets
- June 5: Deploy contracts to mainnet