What is @TimeswapLabs V2 (Nebula) and how is it better than how good you think it is?
A 🧵 providing all you need to know about @TimeswapLabs (incl. what is v1, v2 updates, my thoughts, why it matters, alfafas).
A follow up on AIP-8.
Diving in! (1/38)
The thread will consist of 4 segments:
A. Introduction: What is @TimeswapLabs V1 [3 - 10]
B. V2 updates [11 - 24]
C. My thoughts [25 - 31]
D. Why it matters to you [32 - 33]
A. Introduction
Here's my initial primer on @TimeswapLabs V1 (AIP-8) to get you up to speed.
An TL;DR in the following tweets (until 10/).
twitter.com/archipelabro/status/1589799881106857984
A market-driven oracle-free non-liquidatable permissionless fixed-term lending market.
Lol, you should probably just read my V1 primer.
But if you're still too lazy, go on...
Imagine @AaveAave ,
but all loans (lending and borrowing) have fixed-maturities instead of variable terms.
The collateral and debt value pre-maturity does not matter, it only matters on the settlement date.
i.e., active position monitoring is not needed
Now, liquidations are redundant.
Borrowers have to repay their loans pre-expiry to claim their collaterals.
Upon expiry, no repayments means default -- locked collaterals will be passed on to the lenders and LPs.
Oracle-less and non-liquidatable loans achieved.
In essence, @Uniswap determines prices by calculating how much change an order would deviate the ratio of the pool's contents from its target (constant).
Apply the same logic, in a lending market.
Market-driven rates.
@TimeswapLabs determines interest rates and collateral ratios by calculating how much change an order would deviate the ratio of the pool's contents from its target (constant).
Arbs make rates on-par.
Like Uniswap, Timeswap enables permissionless pools.
There you go.
A
- market-driven (by using an AMM model)
- oracle-free (by removing position mgnt.)
- non-liquidatable (by removing position mgnt.)
- permissionless (by reducing centralized dependencies)
- fixed-term
lending market, that works!
Three main participants: borrowers, lenders, LPs.
Borrowers posts a collateral to open a debt position.
Lenders provide capital and expects yield.
LPs provides both collateral and capital tokens and earns trading fees (they lend and borrow at the same time).
B. V2 updates
Here are the major changes:
- Flexible exit from positions
- Utilization of repaid capital
- Bidirectional pools
- Always overcollateralized positions
- Intro. of transition price
- Single-sided liquidity
- Reduced complexity of native tokens
- Updated "AMM"
Flexible exit from positions
In V1:
Lenders and LPs' positions are only closed upon maturity
Now:
Everyone can withdraw early -- lenders pay a fee, LPs get reduced yields
What this means:
Increased flexibility --> improved UX and more fees for "committers" (earn exit fees)
Utilization of repaid capital
In V1:
Repaid capital remains idle
In V2:
Repaid loans are added back to the pool
What this means:
Higher capital utilization -> increased capital efficiency and lower borrowing interests
Bidirectional pools
In V1:
$USDC-$ETH and $ETH-$USDC two separate pools
In V2:
Pools are combined into $USDC <> $ETH
What this means:
Unified liquidity --> increased capital efficiency and less slippage
Always overcollateralized positions
In V1:
Collateral ratio (CDP) of a pool can go below 100% due to slippage, and relies on arbs to bring back market rate
In V2:
CDP of a pool is designed to a minimum of 100%
What this means:
Less LP risk, and less value absorbed by arbs
Intro. of transition price
In V1:
Borrowers/lenders could customize their position's CDP/APR
In V2:
CDP/APR customizability removed.
Fixed-term lending is comparable to options, transition price is comparable to strike prices (the expected price at maturity).
(cont.)
(cont.)
A pool's CDP/APR will be calculated by the disparity between the transition ("desired") price and spot (based on existing pool) price.
(cont.)
(cont.)
What this means:
Increased user optionality and simplified UX --> users can enter a pool that best fits their risk-reward profile (based on transition price) --> better-served users!
Single-sided liquidity
In V1:
LPs have to provide both collateral and asset tokens
In V2:
LPs have the option to provide liquidity for one side of the pool
What this means:
Increased LP optionality --> higher capital utilization and increased capital efficiency
Reduced complexity of native tokens
In V1:
There were 6 different (ERC20/721) "receipt" tokens
In V2:
There are now only 3 (ERC1155) "receipt" tokens, each representing different participants
(cont.)
(cont.)
What this means:
Enables the development of flexible exits and reduced code complexity (thus gas efficiency)
twitter.com/archipelabro/status/1589799917337600000
Updated "AMM" and mechanism
In V1:
X*Y*Z = K
In V2:
(X+Y)*Z = K
Where X = CCT Token 1, Y = CCT Token 2, Z = BT per second
What this means:
A whole new mechanism for Timeswap V2
(will probably dive deeper in a future thread 👀)
twitter.com/archipelabro/status/1589799895111593984
V2 updates summary.
All in all, V2 updates will lead to a higher capital efficiency and improved UX.
Their words, "a 4-5x higher capital efficiency than Timeswap V1".
Traction.
V1 Alpha launched in Mar 2022.
To date, they ORGANICALLY captured:
- 6.2k users
- 48.3k txns
- US$8mn processed (lend + borrowed + LP)
Not (yet) comparable to incumbents, but shows that there are interested parties, even at such an early stage.
NB: juicy APR 🤤
C. My thoughts
Hopefully by now you fully understood @TimeswapLabs and how V2 is miles better.
I'll follow up with some of my thoughts.
1) The case for fixed-term products
2) DeFi's high opportunity cost
3) The risk of oracles
1) The case for fixed-term products
Fixed-term products are a need in an institutional-oriented market.
But the current crypto market is more retail-driven.
See perps vs options for example. Perps' popularity attests that currently, simplicity > predictability.
Ofc, perps' relative liquidity efficiency plays a part.
Currently, the market still prefers variable-rate products. (See AAVE vs e.g., Notional, Yield Protocol's absolute TVL).
Regardless, fixed-term products are a need for DeFi to expand.
2) DeFi's high opportunity cost
Related to point 1).
Yield opportunities in DeFi are too high and fast.
Do people invest in AAVE to hold their medium-to-long-term bags, or is it just a temporary parking space to enter attractive positions?
AAVE can do both.
I personally skew to the latter. But fixed-rate protocols tend to serve the former better.
Well @TimeswapLabs V2 will be able to serve both too, we'll see how the battle pans out.
3) The risk of oracles
Is it really that big? I don't think so.
For DeFi to expand, oracles are inevitable. New developments in the oracle space (e.g., ZK-powered oracles) pushes the case further.
Wicks can be solved by using WAPs.
But bear in mind, @TimeswapLabs 's proposition for oracle-less is not only safety.
I see Timeswap's non-reliance on oracles not merely as a safety feature, but to be a proper infrastructure layer -- to serve long-tail assets.
Is it that significant? @eulerfinance attests.
D. Why it matters to you
To you users, you can open lending/borrowing positions on a more predictable basis.
To you traders, you can capitalize on arb opportunities and develop more sophisticated (option-related) trading strategies.
To you investors, you can provide liquidity to pools to earn pool fees.
To the crypto ecosystem, there is a new contender in being the DeFi lending and options primitive.
V2 is live now, go test them out!
Chain expansion is on their roadmap -- Arbitrum, Ethereum and Optimism.
Better not fade this one lads!
Resources:
timeswap.gitbook.io/timeswap-v2-money-market/timeswap-v2/introduction
timeswap.medium.com/timeswap-wrapped-2022-62df923a17d3
twitter.com/TimeswapLabs/status/1624481609188802560
timeswap.medium.com/understanding-higher-yields-on-timeswap-d22102f2b548
blog.notional.finance/content/files/2022/06/HRI-DeFi-Fixed-Rate-Protocols-Bear-Market-Haven.pdf
dune.com/ameeth/Timeswap
dune.com/pippellia/timeswap-study
Special thanks to:
@faithoormanvin1
@krishbhatt_
Frens that brought me this far:
@eli5_defi
@defi_mochi
@DAdvisoor
@DegenCamp
@thedailydegenhq
@rektdiomedes
@crypto_linn
@2lambro
@daman_n_diu