AMM With Liquidity Shaping Intents
Problem Statement
Today, the average AMM liquidity provider loses more money than they make in swap fees. In most cases, they are better off holding on to their capital than providing liquidity. Liquidity providers operate in the dark.
The lack of tooling makes it difficult to monitor and operate positions effectively.
LPs can only place static liquidity positions that need manual updating.
Deep liquidity for tokens is a public good in DeFi. It allows us to get our favorite tokens in a decentralized manner, but unfortunately, the LPs who contribute to it are often an afterthought for AMM projects. If we want to compete against CEX volume, we need to make LPing easier.
Secondly, LPing has become so hard due to lack of tooling and frequent losses that it is dominated by private market makers leading to centralization which is against the ethos of crypto. We need to make LPing democratic again.
Uniswap V3
Concentrated liquidity provision, introduced by Uniswap V3, allows liquidity providers (LPs) to allocate their assets within a specific price range. This approach offers several advantages, such as enhanced returns from capturing trading fees within that range, reduced exposure to extreme price volatility, and potentially better capital utilization. The ability to select custom ranges has ushered in a new era, enabling liquidity providers to tailor their investment strategies to achieve specific goals.
However, this freedom has its challenges. It demands a deep understanding of market dynamics and a comprehensive grasp of the risks associated with it. The current AMMs are deficient in tools essential for effective liquidity provisioning. Liquidity providers have limited control over assets and utilization optimization, as well as restricted ability to manage associated risks. Addressing these challenges requires retail liquidity providers to invest time, acquire knowledge, and exercise patience in manually managing capital and making informed decisions.
While Uniswap V3 was revolutionary as it opened a whole new design space in concentrated liquidity provision, projects building for LPs had a hard time building on it, and they usually had a centralized component as part of their system to enable liquidity management.
Uniswap V4
The concept of hooks is again revolutionizing the AMM space. Hooks are customizable pieces of code that execute at specific points in the lifecycle of a swap or liquidity provision event. Hooks enable developers to implement unique functionalities, such as dynamic fees, on-chain limit orders, time-weighted average pricing, and more, directly within the pool logic.
It is now possible to build unique and innovative AMMs and liquidity management tools that directly access the liquidity in the Uniswap protocol.
At A51, we are striving to:
We are committed to equipping LPs with tools to design advanced automated pools.
Here are some of the automation or intent tools that LPs will have access to:
Market Sifting Specify the direction for the liquidity shifting, such as Bull, Bear, Dynamic, and others.
Auto-Rebalance Choose from active and trailing rebalancing types.
Auto-Exit & Reinvest Automate liquidity exits based on set conditions and reinvest into external protocols.
Liquidity Density Function Determine how liquidity should be distributed within ticks, with options such as exponential, uniform, or single tick available.
Hedging Borrow or buy options to hedge against DL and LVR.
Examples
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