Sommelier This Week - May 27th 2021: What Aspiring Sommelier Validators Need to Know on Last Week’s Protocol and App Progress

Jack Zampolin, co-founder and VP product lead at Sommelier, takes a minute and smiles before diving into last week’s progress on Sommelier. He says of the last few weeks on the crypto roller coaster: “Blocks are being made and crypto prices are falling off a cliff, so what else is new?”

One of the things that charges Jack up during market drawdowns, like the one we’ve seen recently, is watching community events like Sommelier’s NFT Awards, which commissioned exclusive artworks and awarded a single NFT of several pieces to reward the most active liquidity providers (LPs).

“Whenever I see something like that I just get into the code and start building again,” says Jack, reflecting on the inclusive power of community. Distracted from plummeting prices, Jack coded away and what a productive week it was.

Take a walk on the app side

Last week, we had the Pairings app launch, which was very exciting. Jack explains:

“The Pairings app is the quickest and easiest way to provide liquidity to Uniswap v3. And, I think we just had a huge litmus test of how the protocol worked. The liquidity that you added last week is still in range even after that huge market correction. So, the prices that we’re suggesting to add liquidity at, tested in real market conditions, tested in a huge pull back, look great. If you’re on that Uniswap v3 ‘add liquidity’ page and you see two price boxes and are thinking what to put there, we’ve done all the work for you. We’ve munched some numbers and we’re giving you some pretty intelligent predictions that will maximize your fees and minimize your time out of band. The ETH USDC suggestions were almost exactly what the price has been over the last week, which I thought was extremely impressive.”

There are three sentiments on the Pairings app: Bullish, bearish, and neutral. So, in the case of ETH USDC, in the range for bearish you would be expecting the Ethereum price to go lower, so your range wants to include lower prices. While the Bullish would skew the prices towards the upper end of the distribution whereas the neutral just picks toward the middle of the distribution.

Jack explains how recommendations are formed: “The way that we’re making predictions is based on the past data from Uniswap v3 and a little bit of Uniswap v2 data. We basically look at data from the last couple of weeks and throw a band around where prices are likely to land over the coming couple of weeks -- because we want these predictions to last for a little while, especially with gas prices as high as they are.”

The bands are not infinite, but they are wide enough to ‘set it and forget it.’ LPs are going to make money even if they’re bearish or bullish; even if the market does crazy gyrations.

“The migration of volume from Uniswap v2 to Uniswap v3 is happening very, very quickly,” Jack observes. Hayden (@DeepDishCrypto) posted some stats about the rundown yesterday. Funny enough, when prices go crazy either in the up or down direction, volume spikes. More people are looking, interested, trading. Yesterday was the highest volume day ever for Uniswap, and I think Uniswap v3 itself took about a third of that volume. So with a lot less liquidity servicing a lot more trades there’s a lot of opportunity for LPs on Uniswap v3 right now.

“I’m just going to keep saying it because it’s true, and I haven’t seen anything else that even comes close: Sommelier is the easiest way to add liquidity in Uniswap v3. Full stop. Give it a try.”

Progress on the protocol side.

All of the progress discussed so far is part of the Gravity refactor. Jack explains:

“The Gravity bridge technology is the core on top of which we are building. Pretty much everything else is an order of magnitude less complex than this Gravity bridge piece, and this is the piece that we need to get right which is why we’re spending so much time and engineering effort on it. Where we are right now it’s great! I cannot understate the amount of progress that the core team has made on that over the last two weeks. It’s huge and it’s much better. The Gravity Factor is now making blocks, which is a huge milestone!”

“We have completed the meat of the work on the Cosmos side. We are now working to get the piece that sits between Ethereum and Cosmos working again while adding test coverage and ensuring correctness on a number of areas. We’re splitting up into a number of pairing teams to do that and that work is going really, really quickly. We are still potentially on track to have it passing the integration testing framework by the end of week. We’re racing to try to do it this week, if not it’s going to be early next week. So that’s a huge milestone.”

When we’re talking about the pieces of the Sommelier protocol, there’s the Chain, the Gravity bridge, the Allocation module and then there’s the Cellar contract over on Ethereum. Quick updates on all of those are discussed below.

The Allocation and Cellar modules

In order to finalize the Allocation module over on Cosmos, we need to finish the Gravity bridge. By having the Allocation module where we need it we’re going to be able to pick it up and integrate that with the Gravity bridge very soon after we finish.

But the other thing that the Allocation module depends on is the Celler contract over on Ethereum. What does the Allocation do? Jack explains:

“The allocation module just sends rebalance calls up to that Celler module. So, that needs to be finished. Steven and the team that’s working on the Viper and Solidity contracts for this have made some great breakthroughs. This is an excellent example of the app development that we’re doing right now that’s just what people think of as the classic Ethereum dApp (decentralized application). It drives the protocol development as well and motivates Sommelier to deploy early versions of stuff that’s going to be used in the protocol on the app.”

A rebalance call for a liquidity position is made up of a few different things, says Jack.

“You need to remove liquidity, you need to do a trade, and then you need to add liquidity. And, that’s a rebalance. So, what have we been building for the app? We’ve been building add liquidity, remove liquidity, and trade i.e., a single-sided ad. So, we shipped all those pieces; the app team is integrating those pieces. Now, on the protocol side we’re putting those pieces together into this complex machinery that’s going to provide a much better user experience and tighter liquidity ranges on Uniswap v3 in the pooling of fees. That piece is coming along nicely. We expect that piece to land late this week, early next week. We’re very quickly getting to a place where we’re going to be able to put all of these protocol pieces together and test them in a testnet.”

Can validators join a testnet soon? Yes, but those with sufficient experience.

After Sommelier conducts an internal testnet, hopefully late next week, Jack will have a better idea for a firm timeline for conducting public testnets. Jack explains why there will be a limited number of validators on the first public testnet:

“One thing that I’m going to say about this is that there’s a lot more complexity to running Sommelier than running other Cosmos chains. Most other Cosmos chains right now there’s a single binary, and it’s kind of a set it and forget it for validators. With sommelier, there are two additional binaries the users are going to be running that connect to a host of backend services. It is going to be vastly more complex than other setups that you’re familiar with. There’s more key material to deal with. There are security assumptions that are made by different pieces of the stack that you will need to educate yourself on. So with that in mind we are going to likely be going to launch with a smaller validator set -- we’re targeting something in the 20-40 validator range -- so there will be a limited number of slots.”

“There’s going to be a lot more communication about this coming out soon. If you are a validator, if you have experience running on more than five networks, if you are excited about a challenge -- There’s a lot of slashing conditions involved with some of this stuff too that it’s going to be the first time deploying this out in the wild -- If you are ready for a challenge please hit us up. We’re looking for the best of the best of validators to help us run this chain and provide excellent quality of service for users of Uniswap v3.”

Communities make everything better

You guys did the NFT awards for Sommelier LPs, which I thought was really exciting -- loved the art. Giving back to the community with great art is wonderful to see. Congrats to the LPs on our platform and app who received their NFT tokens. We have more to come to reward the community and encourage them to continue with us on this journey.