DLMM Strategies
DLMM (Dynamic Liquidity Market Maker) opens up new precision and flexibility for Liquidity Management. With DLMM, you can carefully set a strategy and flexibly adapt it to market conditions. Below is an outline of the various types of strategies that are available, split between Beginner and Advanced.
Beginner Strategies
Normal (Bell Curve)
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 the current 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
Spot (Uniform)
Concentrates the liquidity in a single bin. This is the maximum amount of capital concentration. Having all liquidity in one bin allows users to provide incredebly deep liquidity, enabling slippage free trading and earning those fees.
✅ Advantages:
Suited for Stablecoin pairs
Very capital efficient
❌ Drawbacks:
Biggest risk of impermanent loss if price leaves the bin and does not revert
ℹ️ Considerations:
Can be used in volatile pairs for capturing greatest fees with the highest risk of impermanent loss
Spot (Uniform)
The spot option, distributes your liquidity uniformly across a set price range. Spot liquidity can be set across multiple price ranges. The larger the price range the more bins will need to be deployed effecting the cost of gas that needs to be payed for the deposit.
✅ Advantages:
Even distribution good fee capturing for ranging tokens
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
Bid-Ask
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
Advanced Strategies
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.
Ranged Limit Orders
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
Dollar Cost Average (DCA)
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
Gradual Ladder Orders
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
Sell / Buy Walls
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
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