DLMM Strategies
Last updated
Last updated
Liquidity Book DLMM opens up a new opportunities for your Liquidity Management. With Liquidity Book, you can deploy active liquidity provisioning, this means that you can deploy and manage varying range of strategies, to suit your investment goals. Below is an outline of the various types of strategies that are available, split between Beginner and Advanced.
Distributes liquidity along the "bell curve", making it similar to the liquidity in order book exchanges. Allows to capture fees from both price increases and decreases, while concentrating liquidity around certain price point.
✅ Advantages:
Perfect in calm markets
Capital efficient
❌ Drawbacks:
Increased risk of impermanent loss
ℹ️ Considerations:
Requires rebalancing around current price for maximum effectiveness
Evenly spreads the liquidity out across a specified range or deposits it entirely inside one bin. Having all liquidity in one bin allows users to benefit from the "leverage" the discrete liquidity provides.
✅ Advantages:
Perfect for Stablecoin pairs
Very capital efficient
❌ Drawbacks:
Biggest risk of impermanent loss if price leaves the bin
ℹ️ Considerations:
Can be used in volatile pairs for capturing greatest fees with the highest risk of impermanent loss
The spot option, taken to its absolute. The liquidity is allocated to all currently available bins, resembling the liquidity composition in traditional x*y=k exchanges.
✅ Advantages:
Perfect for passive liquidity providing
Reduced risk of impermanent loss compared to other strategies
❌ Drawbacks:
Reduced capital efficiency
ℹ️ Considerations:
While the capital efficiency is lower than with other shapes, it is still better than x*y=k exchanges
Mimics the bid-ask spread on an order book exchange, allowing liquidity providers to capture fees, as market fluctuates.
✅ Advantages:
Captures market volatility
Allows to Dollar Cost Average in/out of positions
❌ Drawbacks:
Riskier than other strategies
ℹ️ Considerations:
Similar to normal shape, requires rebalancing to stay effective
These strategies outlined below are for experienced Traders and all are considered risky. Before deploying any of the below strategies you should be fully aware of the divergence risk they may possess. If you are uncomfortable with closely monitoring your position, please do not engage in active and higher risk liquidity strategies, such as the below.
Users can use single-sided one-bin spot liquidity to place "limit orders" outside of the current price. Once the price reaches these bins, liquidity in them will be converted from one token to another.
✅ Advantages:
Buy/sell tokens at prices you want
Withdraw/change your order at any time
❌ Drawbacks:
Doesn't earn fees while inactive
ℹ️ Considerations
Require withdrawing to prevent converting back
Spot shape is perfect for providing liquidity for stablecoin pairs, it can also be used to capture fees during minor de-pegs.
Combining two spot shapes above and below the current price can even allow users to earn from de-pegs in both directions.
✅ Advantages:
Earn fees from volatility
Help contribute to market stability
❌ Drawbacks:
Risky if de-peg is permanent
ℹ️ Considerations:
Similar to limit orders, this approach earns no fees while inactive
Combining a one-sided bid-ask shape with uniform distribution can allow you to buy your favourite tokens for cheap if an opportunity arises while continuing to earn fees from swaps around the current price.
✅ Advantages:
Stable fee revenue
Dollar Cost Average at selected prices
❌ Drawbacks:
Sacrifices some fee performance for the Dollar Cost Average opportunities
ℹ️ Considerations:
If the order fills it needs to be withdrawn
Layering multiple spot uniform shapes on top of each other in one direction allows users to gradually scale in and out of positions with market movements.
✅ Advantages:
Earn fees if the market moves in your favour
Passively buy/sell tokens at regular intervals
❌ Drawbacks:
Big risk of impermanent loss if the market moves against your position
ℹ️ Considerations:
Require withdrawing to prevent converting back
Combining normal and uniform shapes can allow liquidity providers to form liquidity "walls". This way the liquidity is much deeper one side of the price while keeping exposure in case price moves in the opposite direction.
✅ Advantages:
Contribute to price floors while earning fees
Less risky than ladder orders approach
❌ Drawbacks:
Can result in impermanent loss if the price moves beyond the wall
ℹ️ Considerations:
Price movements can result in wall needing rebalancing
