In this series of three articles, we explore how Chainlink’s technology has come in handy as a problem solver from a DAO perspective. MetalSwap’s DAO, by its side, leveraged Chainlink's different services to overcome key challenges faced by its governance.
To address the challenges that the DeFi environment brings with it over time, MetalSwap implemented continuously better technical solutions, as well as integrating external services like Chainlink’s to enable conditional execution of smart contract functions and particular features.
As a DeFi building protocol, together with Chainlink's technologies, MetalSwap is enhancing its DAO operations, its DEX liquidity, and mitigating risks associated with liquidations and MEV.
Those challenges are not only MetalSwap’s topics: they represent the common hurdles that any DAO or DeFi builder encounters, while innovating within the ecosystem, making this exploration relevant and insightful for all participants in the DeFi space.
Introduction
MetalSwap, the Hedging Contract protocol with its governance token XMT born on Ethereum mainchain at the end of 2021, is a reality of the DeFi sector that aims to give the service of protection against digital asset’s volatility.
To do so, it took the concept of Hedging Contract explained by Vitalik in Miami’s conference 2014 and created the first unique tool that gives the possibility to hedge against price volatility with an auto-expiring position.
On Ethereum mainchain the dApp is working with assets like ETH, WBTC, and GOLD (WPAXG).
To get correct prices to make the dApp work in a smooth way, MetalSwap developed the first integration of Chainlink’s most famous tool: the price oracle.
Ether price fetch on MetalSwap dApp
This was just the beginning: MetalSwap’s DAO faced diverse kinds of challenges during its journey, linked to DAO costs, governance token liquidity, liquidation of hedging contracts, MEVs and more.
With this paper, we’ll see how Chainlink services made MetalSwap able to overcome these challenges and improve its main dApp with several new features which have been developing and spreading in recent months as excellent solutions from a cost and security perspective - and not only.
This is the beginning of a fruitful cooperation between the two teams, creating new DeFi Lego-pieces and making the sector more reliable, smoother and smarter day after day.
Let’s deep dive together into 3 different challenges that every DAO faced during the recent years of development, and how Chainlink’s tools can work to solve them.
Challenge #1: Governance Token Liquidity
Let’s talk about liquidity: a DAO wishes to have a token with distributed liquidity, with as little price impact as possible on the DeFi market.
The most famous decentralized exchange with the biggest liquidities on Ethereum is Uniswap, where on its first deeply used (and copied) version, the V2, everyone got the possibility to obtain incentives creating or taking part in existing Liquidity Pools, so obtaining “LP Tokens” representing that liquidity that is gaining profits due to the pool’s usage from users that utilize that particular pool, swapping a token for another and paying a fee to the Liquidity Providers.
During 2020 and 2021 was invented a fruitful way to incentivize Liquidity Providers: through the UniV2 LP token staking on DAO’s webapps, everybody was allowed to leverage their LP positions and get DAO’s governance token through its “Liquidity Mining”, in addition to the UniV2 LP pools’ fees. This was a very smart way to incentivize users to provide liquidity on the Dex and reward ‘em with DAO’s liquidity, and the related voting power.
Unfortunately, the newer version of Uniswap, the V3, with the new “LP range” system, needs a brand-new tool to do something like this with the new in-range LP NFTs.
By the way, on Uniswap V3 lies the biggest Liquidity Pool of many DAOs: this is the case of XMT token, and MetalSwap DAO - which just like a lot of other DAOs born from 2022 on, has now a need:
The needing is to lower the price impact on UniV3 pair and allow users to find more liquidity of the governance token through the first exchange pool
So how to bring that useful lego-money tool that incentivizes the liquidity provided on UniV3?
The First shot - UniV3 LP NFT Staking (Legacy)
MetalSwap’s team developed during 2022 on Polygon’s chain the first - now deprecated - UniV3NFT Staking feature: a tool used to put in Stake on MetalSwap’s dApp the Liquidity Providing NFT coming from Uniswap V3 official pool and boost the rewards coming from the in-range NFT with XMT.
You can find the Legacy UniV3NFT Staking feature by clicking on the following link:
https://legacy-nft-staking.metalswap.finance/
Meanwhile, a new tool has been deployed:
Chainlink Automation
“Chainlink Automation enables conditional execution of your smart contracts functions through a hyper-reliable and decentralized automation platform that uses the same external network of node operators that secures billions in value. Building on Chainlink Automation will help you get to market faster so you don't have to deal with the setup cost, ongoing maintenance, and risks associated with a centralized automation stack.”
https://docs.chain.link/chainlink-automation/introduction
This approach can make a feature like the UniV3 NFT Staking smoother and with more precise computations.
Solution #1 - Uniswap V3 Liquidity Providing NFT Staking
As said, the original UniV3 NFT Staking feature has been deprecated due to technical reasons: a new way of doing this can involve Chainlink’s Automation service in its backend to ensure NFTs’ better management - this time doing this 100% from the NFT creation, on MetalSwap’s new frontend and without any fee rising for the user that will get the same UniSwap’s smart contracts interactions.
So it’s time for a new UniV3 LP NFT Staking Testnet on Mumbai, exploiting the Mumbai Testnet until its latest day of service!
After a successful testnet period, the new tool is now Live on Optimism’s mainchain:
https://app.metalswap.finance/#/nfts
Resembling the Legacy NFT staking feature released on the Polygon blockchain almost two years ago and now deprecated, this new release will allow Uniswap liquidity providers for the XMT/USDC 1% pair to stake their liquidity-derivated NFTs within MetalSwap’s dApp to earn higher rewards.
In fact, compared to the classic Uniswap commission rewards, staked NFTs will allow users to earn extra rewards from a prize pool.
This feature is Live Now, and you’re invited to try it!
How to use it:
To get started, navigate to the NFT Staking section of MetalSwap's dApp and make sure to select the Optimism blockchain from the navbar drop-down list.
You can also use the official Uniswap frontend, but on the MetalSwap dApp there is no way to give liquidity to the wrong pool.
We’re using the UniV3 Liquidity Providing NFT on XMT / USDC.e 1% pair, directly using MetalSwap's frontend (but you can still use the UniV3 frontend with the same fees).
The minimum counter value of the individual NFT must be 5001 XMT, or 101 USDC.
When minted, you’ll see your NFT ready to be staked:
And also, it’s possible to manage the position overtime: this is useful in the case it goes out of range.
With this UniV3 NFT Staking feature, we created a win-win situation, where users get more rewards in exchange for the direct ownership of the NFT, and the DAO is happy to incentivize those people that want to add liquidity to the governance token on its main Dex pool.
This is clearly useful to keep the market liquid, raising liquidity pool’s TVL and making less price impacts when new players want to be part of the project and gain voting power.
This is how MetalSwap solved the first of three different common DAO challenges thanks to ChainLink’s tools, upgrading the team's knowledge about the ever-evolving world of DeFi and cooking new tools that may become useful to the whole ecosystem.
Delving into Chainlink’s services like CCIP and Automation is a giant step towards understanding and shaping the transformative journey of DeFi. Staying informed and engaged is essential for anyone looking to be part of this exciting new chapter.
Embrace the change, explore the ways, and be part of the unfolding future.
- The DeFi Foundation
✎ What is MetalSwap?
MetalSwap is a decentralized platform that allows Hedging Contract on financial markets with the aim of providing coverage to those who work with Digital Asset and an investment opportunity for those who contribute to increase the shared liquidity of the project. Allowing the protection for an increasing number of operators.
With Hedging Contract we enable hedge swap transactions through the use of Smart Contracts, AMM style.
It's great to Hedge the Risk of Price volatility with MetalSwap dApp !