[Proposal] Augur V2 Trading via Uniswap V3

[Proposal] Augur V2 Trading via Uniswap V3

Summary: This proposal would be to fund a small development team from the future DAO treasury to bring trading activity of Augur V2 outcome tokens to rails such as Uniswap V3 on primary Ethereum L1.

Details: Augur V2 is the current deployment of the Augur protocol which uses REPv2 to secure the primary human dependent oracle. This oracle is slow, comparatively, however can be used with a higher degree of confidence for resolving markets with large open interest due to its security model. While Turbo and Chainlink have proven to work and be more ideal for quick resolving and lower open interest markets, there is still something to be said in that a 48 hour to one week resolution period may still be sufficient for long-tail markets that are already open for quite some time, and ones where the open interest is large enough to where traders may still want it secured with the human Augur oracle and open to Augurs dispute resolution.

This proposal would be to fund a developer or two to create the required infrastructure needed to trade Augur V2 outcome tokens on modern-day trading rails such as Uniswap V3, where liquidity providers can take advantage of things such as the concentrated liquidity ranges. A similar example would be to create a system similar to what Catnip used to do, however replace trading in a Balancer Smart Pool with Uniswap V3 ranges. The Catnip model using Balancer required significant capital in order to balance and provide liquidity to the pool, making providing liquidity a very expensive and capital extensive task for the normal user. Using Uniswap V3 ranges, users can single side deposit and deposit on specific pre-defined ranges, allowing them to provide outcome token liquidity without needing large sums of initial capital.

The result of this development would be the trading of traditional Augur V2 outcome tokens in modern and more efficient manner, while having these outcome tokens secured by and resolve to the primary Augur V2 human oracle secured by REPv2 holders.

I believe the types of markets that would benefit from this structure and deployment would be longer-tailed and higher expected open interest markets. For example, a Superbowl market many months in advance, high-profile political markets, EOY-type markets, etc. We saw with the prior presidential election that there is some level of demand for these types of outcome tokens on Ethereum L1, with over $15M in open interest being escrowed in the V2 presidential market and significant secondary trading on both Uniswap V2 and Balancer (even with the less-than-ideal LPing and capital requirements).

Spec: Fairly confident this could be done by using a fork of Augur Foundry (developed by Catnip) to mint Augur V2 complete sets, then just providing these outcome tokens to a Uniswap V3 range instead of Balancer pools. It would be nice to have a custom AMM UI (similar to catnip.exchange) that would route and link to the primary outcome token markets trading on Uniswap V3, along with a CoinGecko type-list of the market cap, open interest, volume, etc of each trading outcome token.

Pros: Augur V2 outcome tokens being routed on modern and the primary Ethereum L1 trading venues, bringing open interest back for REPv2 holders to report on and resolve, provide a higher-security option for traders interested in some higher valued and longer lasting markets.

Cons: Trading on Ethereum L1 is expensive, but there is still some demand and tolerance for Uniswap level transaction fees. Creating initial ranged on V3 are quite expensive. Infrastructure for tracking the volume and activity of these tokens is non existent and messy at the moment.

TLDR: Find a developer or two who would be interested in integrating on the Catnip style model of trading Augur V2 tokens, create the supporting infrastructure required to efficiently track and monitor the activity, and to create a portal UI to allow users to trade these outcome tokens (like catnip.exchange). My initial thoughts would be that a $50k-$100k grant from the DAO should be sufficient to find some talent to attempt to take on this task.

I will add more thoughts as I continue to think about this and receive feedback, however would like to hear others thoughts on if this would be a valuable product for the Augur ecosystem and if it would be worth funding as an early Augur DAO product example.

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Yeah, that’s what we need for large oi long term markets, for instance elections
But I propose to use arbitrum L2 instead of eth mainnet for trading because since catnip activity last year ETH price increased 10x and average gas prices increased from 30-50 gwei to 100 gwei. So gas costs are too high even for trading on amm

Liquidity providers mint shares and transfer it to arbitrum, after that create uniswap v3 pool with custom liquidity curve.
After or even before market resolution on eth mainnet large LPs for small fee offer settlement to small bettors who doesn’t want to bridge their winning shares back to mainnet. I think would be good to have some special ui for that

Not opposed to trading on alternate L2s, however I don’t agree with a blanket dismissal that trading costs are too high on ETH L1. Uniswap still does $2.5B+ daily volume, all ETH L1 DEX’s well over $5B+ daily, while I agree it has priced many people out – I think there is something to be said for the sheer amount of trading capital that exists on ETH L1 that intendeds to stay there and that is willing to accept these on-chain trading costs. While this solution is not a viable trading solution for the small trader, I see it as a possible avenue to attract larger-sized and volume traders that are OK with the trading fees involved with Uniswap on L1. I see this as a possible way for significantly increasing open interest in Augur V2 through a smaller handful of traders and LPs, rather than as a method for attracting more users by raw number themselves.

Can we please get more long-tail example markets to be included? And how would Super Bowl market work numerous months in advanced? Would this be a pool with shares of every team?
And what research / reasoning do we have to concluded that Uniswap V3 will be more optimal than Balancer. What sort of comparison between the two models and their advantages and disadvantages been done?

I like this proposal. I think the comments above re: that this would not be practical for small traders (due to the expense of using L1) is an important caveat. But I think this model would work well for large bets / large events. My understanding is that most OI on augur historically has been from a small number of relatively large bets, so I think overall this proposal is a good one.

Uniswap V3 trading ranges is what lp’s need. But why Ethereum? Too expensive! Can’t it be done on any other chain? Historically, Augur’s team has made decisions in favor of Ethereum, arguing that the big players don’t care about the high fees. All in all, this philosophy has failed.

Many prediction markets like sports have a narrow range of price fluctuations before the start of the event. It often looks like trading of stablecoins. Narrower ranges allow to concentrate liquidity within the boundaries in which it will actually be used. In simple words - better prices for users and more fees for lp’s.

I think this would be a cool, worthwhile experiment. A few thoughts:

  • Catnip has some of the backend in place for this, as well as its trading and Foundry UIs. So this could potentially be done under the Catnip brand, provided funding. Catnip still has some treasury funds that could complement a grant. I don’t think I’d be involved much hands on but could advise.
  • Regardless, Yash, the based dev who I worked with on Catnip, would be a no-brainer for this, provided he’s available and interested.
  • Strongly favor L2, mostly because rebalancing fees on L1 could rek LPs, but also better trader UX. And we could expect better bang for the buck with liquidity. For example, Uniswap v3 on Arbitrum gets ~7x greater volume for every unit of liquidity than L1, see Uniswap Info
  • Midterms could be a good place to start
  • Confidence that market would resolve quickly would be critical for traders as that was a big issue with 2020 election market
  • Would need a custom trading UI with no geoblock IMO
  • Balancer was beneficial for Catnip, as it allowed more flexibility: up to 8 outcomes (useful for categorical markets and YES/NO/DAI binary pools), flexible fees, smart pools etc. In this case, a binary market could be implemented as either two independent pairs e.g., YES/DAI + NO/DAI or as one pair, YES/NO, in which case under the hood, users’ collateral, say DAI, would be used to buy complete sets and the YES would be swapped for NO if the user wanted NO shares or vice versa if they wanted YES. There’s tradeoffs to each approach here.
  • Uniswap v3 offers three fee tiers. These should probably be 1% given high risk.
  • If Sushi’s Trident were ready on time for this, it might be a better option due to more flexibility and Sushi potentially offering LP incentives.
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