GM!
Although the Liquidity Book (LB) from @traderjoe_xyz boasts impressive mechanisms, it is often overlooked in discussions regarding Uniswap v3 forks.
In this discussion, we will delve into the LB mechanism and its latest version, Liquidity Book v2.1.
Disclaimer:
This publication is not intended to provide any financial, investment, legal, tax, or other advice. Readers should conduct their own due diligence before making any decisions based on the information contained in this report.
Tagging some of @traderjoe_xyz team here :)
@cryptofishx
@0xmurloc
@DavideFi_
@blueclarityone
@unsehrtain
@0xLevi_
@Grandma0x
Table of Contents:
🔴 LB vs Conventional AMMs
🔴 How LB Works?
🔴 Basic LB Strategy
🔴 Advanced LB Strategy
🔴 How to Use LB Strategy
🔴 LB v2.1
🔴 Autopool (AP), Blackbox, and AP Farms
🔴 Permissionless Pools
🔴 Fee Sharing
While Liquidity Book (LB) may appear similar to conventional AMMs, there are some fundamental differences:
🔴Liquidity distribution in price bins (vertical)
🔴Variable fees for mitigating impermanent loss
🔴Composable liquidity
🔴Highly efficient utilization of liquidity
In LB, transactions happen via active bin reserves without price slippage. When exhausted, alternate bins are employed according to price movement.
This will result in a better trading experience for users and better fee generation for liquidity providers.
To implement an effective Liquidity Book (LB) strategy, it's crucial to grasp the fundamental mechanisms and their advantages and disadvantages. Here are the four basic LB strategies:
🔴Curve
🔴Spot - Ultra-Wide, Spread, and Concentrated
🔴Wide
🔴Bid-Ask
Curve Strategy
Curve strategy allocates liquidity in a curve shape, like exchanges' order books, catching fees from price changes.
✅Suitable for calm markets, capital efficient
❌Risk of IL is high, require frequent rebalancing
Concentrated Spot
Highly concentrated approach apt for stable pairs. Usable in volatile markets but with impermanent loss risk if asset price swiftly departs from the bin
✅Suitable for stable pairs, max capital efficiency
❌Risk of IL is high, require immediate rebalancing
Spread Spot
This strategy deposit liquidity into 20-30 bins. which enables LP to stay within range during intraday volatility but necessitate rebalancing for larger price swings.
✅ Intraday low-mid volatility, capital efficient
❌High IL risk, require constant rebalancing
Ultra-Wide Spot
Depositing liquidity into 200 or more bins is considered ultra-wide. While this approach may yield a lower return, it requires less monitoring or rebalancing.
✅ Low IL risk, less rebalancing
❌ Lowest capital efficiency
Wide Strategy
A wide strategy spreads liquidity across 50 bins and is ideal for a passive approach. It requires less monitoring, except when there is substantial movement in the asset price.
✅ Low IL risk, less rebalancing
❌ Low capital efficiency
Bid-Ask
Resembling an order book exchange, the Bid-Ask strategy is perfect for capturing a fluctuating market. It should only be executed to capture situational volatility.
✅ Suitable for volatile markets using DCA in/out
❌ Low capital efficiency, high IL
Advanced trading strategies are mainly designed for experienced traders, and they come with high risks.
Before using any of these strategies, it's crucial to have a full understanding of their potential divergence risk and engage in intensive position monitoring.
Rather than direct trading the assets, utilizing a liquidity book provides several benefits, including:
🔴Retaining variable and trading fees
🔴Cost-efficiency for multiple and large trades
🔴Flexibility in implementing tactics
🔴Composable liquidity
@traderjoe_xyz just released Liquidity Book v2.1, featuring a wide range of new features and improvements:
🔴 Native limit orders
🔴 Permissionless pool
🔴 Autopool and Blackbox Strategies
🔴 Improved gas optimization for transactions and LPs.
🔴 sJOE fee sharing
Autopool is a fully composable, automated strategy execution layer designed for LB.
It's capable of managing user positions and adjusting them according to market volatility. Additionally, Autopool can utilize off-chain script to update strategy (blackbox strategies).
Currently, Liquidity Book Pools are permissioned.
Although a permissionless pool can be configured with 100 basis point discretization out of the box, it has limited liquidity protection since it can only be paired with whitelisted assets.
Fee sharing for sJOE stakers will be activated soon, exclusively on each chain.
sJOE on Arbitrum will share fees on @arbitrum, while sJOE on Avalanche will do the same on @Avax.
Additionally, LPs' fees will be automatically compounded, reducing gas costs by 30-40%.
References (link in ALT):