The question that needs to be asked (and answered) 🙂
- This article was originally published by Charm on 14th August 2022 at Mirror. It is reproduced here for Charm’s readers on Medium.
Introduction
Everything needs liquidity, but one of the biggest questions in crypto, and indeed in finance, is why should anyone provide liquidity? The answer is simple:
Liquidity providers earn yields when the market price goes up or down.
Liquidity Provision is therefore an excellent way to earn income from volatility, to diversify portfolios, or to hedge a position; but historically, these benefits are unavailable to most investors because they have been centralized by market makers such as Citadel, Jump, and Jane Street.
DeFi opens up the benefits of liquidity provision to everyone; but providing liquidity have not achieved mass adoption due to a number of challenges.
The challenges
The challenges for liquidity providers (LPs) are:
- Not user friendly
LPs need to go through a number of steps when providing liquidity.
- Lack of choice
LPs cannot provide liquidity for any asset.
- High risk
There is a high risk of impermanent loss.
- Lack of useful information
LPs do not know how their returns are generated, nor can they reliably track the performance.
- High cost
Existing providers charge fees up to 50%, significantly lowering the returns for LPs.
- Lack of transparency
LPs do not know how their assets are being managed, because existing providers manage their assets off-chain.
The solutions
The Alpha Vaults super-app is the first to overcome all the challenges, and is therefore a super-app that unlocks the full potential of liquidity provision for everyone. It provides the following solutions for liquidity providers:
Easiest way to provide liquidity
LPs can provide liquidity in 1-click. There is no need to pick a range or build your own LP Strategy.
Unlimited choice
If a Liquidity Provider cannot find a vault to provide liquidity, they can create it themselves with 1-click.
Risk mitigation
All vaults have a mechanism to reduce the risk of Impermanent loss, and its effectiveness have been proven during 2+ of testing on Mainnet and L2. The historical track records illustrates how the mechanism resulted in higher returns for LPs.
Useful and transparent performance charts
The vaults’ performance charts are taken from on-chain data, and track the LP’s overall performance, fees collected, capital efficiency, and much more…
Low cost
The total protocol fees is only 1% Uniswap fees, which means Alpha Vault users will keep virtually all the gains. There are no entry fees, exit fees, or any other fees.
100% on-chain
LPs have total transparency on how their assets are being managed, because the vaults’ code and strategy is on-chain and verifiable by anyone.
Security
Alpha Vaults have one of the longest track records for security, with no security issues since launching on 7th May 2021. In addition, it has received 3 audits.
Conclusion
Why should I provide liquidity? Alpha Vaults is the answer — you can try it at charm.fi.
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