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Liquidity Strategy

Maximizing Returns

The end user will be provide double sided liquidity into a vault, which will then be distributed across multiple liquidity ranges. This isolates positional risk, which will then be rebalanced to predetermined weighted allocations periodically.
Providing liquidity in Camelot v3 across multiple ranges can be a strategic approach to minimize impermanent loss while maintaining a healthy fee revenue. Impermanent loss occurs when the value of the assets in the liquidity pool diverges from the value of the same assets held outside the pool due to price fluctuations. By spreading liquidity across multiple price ranges, liquidity providers can mitigate the impact of impermanent loss and improve overall profitability.
In Camelot v3, liquidity providers have the option to concentrate their liquidity within specific price ranges, which are known as "concentrated liquidity positions" or "ranges." Each range represents a specific price interval within which the liquidity provider's assets will be concentrated. To optimize the liquidity provision across multiple ranges, the following steps are considered:
  1. 1.
    Selecting Optimal Ranges: Concentric will choose a set of price ranges that align with risk tolerance and market outlook.
  2. 2.
    Weighted Allocation: Liquidity is allocated across the selected ranges based on the confidence in each range's performance. A higher percentage of funds are deposited within the ranges prices to remain relatively stable, a smaller percentage to ranges with potentially higher volatility.
  3. 3.
    Fee Collection Strategy: Consider a fee collection strategy that maximizes fee revenue without sacrificing liquidity diversification. Camelot v3 allows liquidity providers to set custom fee tiers for different price ranges.
  4. 4.
    Risk Management: Positions are automatically rebalanced via the contracts to ensure price stays constant within range. If there are black swan events, liquidity can be manually rebalanced.
By implementing these strategies, Concentric liquidity providers in Camelot v3 can optimize their exposure to impermanent loss while maximizing fee revenue, creating a more sustainable and profitable liquidity provision strategy.