Understanding DefiEdge’s ALO : Automated Liquidity Management for Concentrated DEXs
In the realm of cryptocurrency trading, adept liquidity management stands paramount. This is where DE ALO strategies step in, furnishing an automated solution to handle liquidity amidst volatile trading pairs.
“ The taste of the pudding is in tasting it !!! “
The Automated Liquidity Optimization (ALO) solution by DeFiEdge provides an advanced strategy for liquidity providers (LPs) on concentrated decentralized exchanges (DEXs). By combining several mechanisms to manage liquidity position, the ALO strategy aims to maintain a balanced liquidity provision and mitigate impermanent loss while maximizing returns. This document describes the methodology behind the ALO solution, including the considerations, functionalities, and features designed to optimize liquidity provision for LPs.
In August 2023, DE ALO showcased a dynamic management of liquidity for key volatile pairs such as ETH-USDC and ARB-USDC (live on Camelot). These strategies not only aim to surpass the conventional HODL strategy but are also distinctive in preserving a balanced 50–50 distribution, eliminating the need for swaps.
Understanding ALO’s Core
The strategy employs a dynamic range, adjusting its width based on market conditions. As market volatility shifts, so does the range’s width. If the market showcases a trend, the range skews accordingly. This adaptability ensures a balance between impermanent loss (IL) and fees.
- Adaptable Liquidity Ranges: ALO’s core strategy exudes adaptability. With a range that modulates based on market conditions, it narrows or widens its focus in response to volatility. More intriguingly, during distinct directional trends, it exhibits a biased skew, ensuring traders remain in the green.
2. Strategic Narrow Ranges: To accentuate at-price liquidity or recalibrate token value imbalances, ALO employs specific narrow ranges. Consider the ETH/USD price trajectory on 30/08/23; despite the price potentially exiting this narrow range, the resultant IL remains low. This intricate design anticipates such variances, guaranteeing strategy synchronization over prolonged periods.
Performance Metrics:
ETH-USDC and ARB-USDC vaults have been active on Camelot since 14/08/31.
ETH/USDC:
ARB/USDC:
Their performance was as follows:
For the ETH-USDC vault, the TVL is $243,551.2327 with a HODL value of $242,159.8878. It has an annual fee of 13.77%, an APR of 0.574%, a return of 36–108% against HODL, and when rewards are considered, the annual return ranges between 1.95–4.72%. In contrast, the ARB-USDC vault records a TVL of $64,140.0470, a HODL value of $63,999.1227, an annual fee of 5.28%, an APR of 0.220%, a return of 50–150% against HODL, and with rewards, an annual return of 2.14–5.98%.
By the time this analysis was conducted, ETH declined about 9% and ARB by nearly 19% since inception. Typically, such drops would lead to significant IL. However, ALO outperformed the HODL strategy, even excluding rewards. ETH strategy had two rebalances, and ARB underwent four (excluding deposits).
DefiEdge’s ALO offers a potent solution for automated liquidity management. By balancing liquidity with managed risk, it emerges as a valuable alternative to HODLing. Given its performance, DEALO showcases potential for incentivized liquidity at optimised costs, appealing to both traders and liquidity providers.
Here is more info on the advantages Automated Liquidity Optimization (ALO) offers:
1. Shield from Complexity:
Automated Liquidity Managers, such as ALO, effectively shield users from the intricate nuances of liquidity provisioning. They offer a plug-and-play experience where users can enjoy the benefits without diving deep into the mechanics of liquidity management.
2. Eliminating Swaps:
Unique to DefiEdge’s ALO, it abstains from swaps. By utilizing a strategic 70–30 liquidity deployment ratio, it substantially curtails the exposure to impermanent loss (IL), a persistent concern for liquidity providers.
3. Real-time Monitoring & Adaptation:
It’s not just about placing assets; it’s about continuously tuning them. ALO is always vigilant, constantly observing market dynamics, and recalibrating positions to ensure they’re optimally placed for best returns.
4. Volatile Conditions Trend Indicators:
Markets are unpredictable. However, with ALO’s trend indicators, decisions are made in harmony with the prevailing market sentiments, making it invaluable during volatile market phases.
5. Reduced Slippage:
Slippage can erode trading profits. ALO’s strategy of concentrating liquidity ensures that large trades can be executed with minimal price deviation, ensuring better trade execution for users.
6. Increased Liquidity Depth:
Concentrating liquidity in specific price bands where trading activity is robust means there’s more liquidity available where it’s most needed. This depth ensures that traders get better prices and experience less price impact.
7. Boosted Volume:
By optimizing liquidity provision and reducing slippage, ALO attracts more traders to the platform. The enhanced user experience translates to increased trade volume, benefiting both traders and liquidity providers.
Well that’s Christmas coming early with these advantages. Interested in more DefiEdge ALO Research? Keep following us on Twitter and Medium to not miss these mathematically tingling updates.
Don’t forget to check the App to make use of these strategies:
For additional questions, check out our docs:
https://docs.defiedge.io/
Join Us
Follow us on social media to stay updated about all upcoming events and announcements.
