This application covers the onboarding of two add-on features to Uniswap for the purpose of providing mitigated impermanent loss for Uniswap liquidity providers and thereby significantly contributing to the enhancement of Uniswap's value.

[Moby’s Value Proposal]

Moby proposes the integration of two features onto Uniswap that can effectively contribute towards hedging against Impermanent Loss (hereby “IL”) — a primary risk for Uniswap Liquidity Providers. 

With Moby’s design concentrated towards realizing (1) real-time accurate pricing; (2) narrowest spread in the market; (3) abundant liquidity; and (4) scalable infrastructure at large, Moby is the most suitable on-chain options protocol to integrate and thereby effectively render IL hedging for Uniswap Liquidity Providers. 

[Why Options for IL Hedging?]

On Uniswap, Liquidity Providers must bear IL risk in exchange for accrued transaction & trading fees. The most recent Uniswap V3 model focuses on concentrating liquidity in specific price ranges that incur significant volume to maximize trading fee accrual and thereby incentivize Uniswap liquidity providers. 

While the V3 model’s intention is well-grounded, liquidity providers on Uniswap may be exposed to greater risk in certain situations. For example, in the case of a sudden change in the value of the underlying asset, the internal token ratio of the Liquidity Pool pair would shift accordingly, which may render IL for liquidity providers — In such volatile market conditions, liquidity providers may start flocking towards collectively withdrawing their liquidity to mitigate risk. 

Consequently, Uniswap may be exposed to the risk of decreasing Total Value Locked (TVL) and liquidity providers may face reduced profits, increased losses, and higher gas fees.

Applying options can function as a more effective means to hedge risk and thereby mitigate IL risk.
Uniswap’s IL, the core risk factor for liquidity providers, can be represented with the short Gamma options payoff curve. The IL’s nonlinear characteristic makes it challenging for Uniswap’s liquidity providers to achieve perfect hedging with instruments such as futures because futures payoff is linear. 

Refer to "Article_1": https://drive.google.com/drive/u/0/folders/1wRTSg6jHAXECTaT8MKtrcSBIyWTaLUbz

[Why Moby?]

Backed by its own game-changing Synchronized Liquidity Engine (hereby “SLE”), Moby is capable of providing Uniswap’s liquidity providers access to Liquidity Pool rewards with significantly mitigated IL risk with features that enables seamless risk hedging mechanism with on-chain options.

From a comparative perspective, Moby is the most suitable on-chain options protocol to provide IL risk hedging mechanism for Uniswap’s liquidity providers. Here is why:

Orderbook models are highly dependent on the liquidity of Market Makers. Such dependency renders wide spreads and a long time for orders to be executed. Under such an environment, liquidity providers will inevitably be exposed to higher costs and resources compared to the potential benefits of hedging with on-chain options, let alone being exposed to the risk of not being able to hedge at all.

On the other hand, Moby supports narrow spreads and immediate transactions for options on a 24/7 basis. The high leverage and maximum capital efficiency Moby provides will enable liquidity providers on Uniswap to use a portion of their rewards to set up an options positions to hedge their IL risk.

>> [Add-on Feature (1) Impermanent Loss Hedge Insurance]

From a user-flow perspective, if a Uniswap liquidity provider connects his or her wallet to the Impermanent Loss Hedge Insurance (hereby “IL Insurance”), the potential IL the liquidity provider is exposed to is calculated based on multiple scenarios and Moby will suggest as well as execute optimal options positions to effectively mitigate IL risk. With the Impermanent Loss Hedge Insurance in place, Uniswap liquidity providers can mitigate IL risk with a very small amount of capital. As for risk-tolerant speculative traders on Uniswap, Moby can act as a means to bet against Uniswap’s IL risk. 

Users can review the IL graph based on the price fluctuations of any one asset within the LP's asset pair. Additionally, they have the option to purchase Moby's Options based on their risk appetite by selecting parameters such as the expiration date of the Options and hedge levels (“Week Hedge”, “Over Hedge”, etc.).

Currently, with the Position Manager function on Moby, users can easily access their position information, including their expected PnL for different scenarios. By further refining and improving Moby’s Position Manager, it is possible to design various strategies that would not only hedge IL risk but also enhance overall profitability for Uniswap liquidity providers.

Refer to "Article_2": https://drive.google.com/drive/u/0/folders/1wRTSg6jHAXECTaT8MKtrcSBIyWTaLUbz

>> [Add-on Feature (2) Automated Uniswap Liquidity Pool Hedge Vault]

On top of the Impermanent Loss Hedge Insurance, Moby also plans on introducing Automated Uniswap Liquidity Pool Hedge Vault, whereby Options are automatically repurchased to carry out hedging for liquidity providers on Uniswap.

When a user deposits Uniswap LP into the Automated Uniswap Liquidity Pool Hedge Vault, the Vault would calculate the overall Position Risk and hedge the liquidity provider’s IL by automatically purchasing optimized options. Through this process, users can achieve stable profits without any IL risk by simply depositing LP Tokens.

The initial model will be limited to underlying assets (BTC and ETH options) currently available on Moby. However, Moby plans to expand the scope of available asset classes to altcoin options and perpetual options. This is expected to further enhance capital efficiency and meet various user needs.