Introducing Greedy Liquidity
If you provide liquidity in DeFi, chances are you’re a loser.
Recent studies have shown that more than half of liquidity providers’ positions are actually losing money when they provide liquidity.
This is outrageous. The point of providing liquidity is to make money. You’re the one risking your tokens, you’re the one supporting the project, you’re the one keeping DeFi alive. You should get the benefits. But instead, LPs on Uniswap and SushiSwap are paying for the privilege of having their money taken right out from underneath them.
The reason for this inequity is the unfortunate reality of today’s Decentralized Exchanges which create a zero-sum game between two key players:
- Liquidity Providers (LPs) who provide the liquidity (market makers).
- Arbitrage traders who buy that liquidity and sell it elsewhere for a profit (market takers).
When arbitrage traders make money, LPs lose money. Liquidity in DeFi so far can only have one winner, and right now those are the arbitrage traders.
But there is a solution. In the words of famed fictional Wall Street mogul Gordon Gekko, “Greed is Good.” When it comes to liquidity, greed is great, greed is the future.
It’s time for liquidity providers in DeFi to be a little greedy. That, of course, means finally making money on deposits. Unfortunately, that’s not as simple as it sounds. The reason that arbitrage traders are currently taking the majority of profits in DeFi is because traditional liquidity programs are hard to manage and costly for liquidity providers as well as the projects that rely on them. This is not an easy problem to solve.
For this reason, we created Vaults and, in doing so, have provided the world’s first “Greedy Liquidity” protocol. We call it Greedy Liquidity because our Vaults know what asset the LPs want and work to acquire more of it. This is in contrast to traditional liquidity programs that target an equal mix of two assets held in their inventory where the protocol cannot identify which of the two assets the users want to accumulate.
Traditional liquidity programs also leave LPs at major risk of impermanent loss; when a user ends up having less total value than if they had never provided liquidity in the first place. This loss of value can be attributed to arbitrage traders taking a user’s undervalued liquidity to another exchange and profiting on the difference. Alternatively, using ICHI’s Greedy Vaults, liquidity is concentrated using an unbalanced liquidity approach that helps mitigate the risk of impermanent loss and supports LPs.
A common question we get asked about Greedy Liquidity is whether it costs crypto projects more money because someone has to “pay” the LPs. That is old thinking based on the way that traditional liquidity programs require crypto projects to essentially “rent” their liquidity through massive rewards programs that encourage deposits.
ICHI’s Vaults, on the other hand, align incentives between the LP and the crypto project and create profitable strategies for each.
Vaults are an improvement upon Uniswap V3 and they combine single-token deposits with concentrated liquidity in order to provide LPs with positive yields. Vaults are actively managed to ensure that the price range of each LP’s position remains within the most profitable range — maximizing its efficiency and paying users higher fees.
Vaults are programmed with Greedy Liquidity built in. Focusing on:
- Slippage Adjustments: Liquidity is spread out to decrease the risk of over-selling tokens at a discount (it is more expensive for anyone to sell tokens and easier for anyone to buy them).
- Liquidity Concentration: Unbalanced liquidity concentration that accumulates more of the deposited asset (get more of the token you deposited in the pool).
Vaults also benefit Crypto projects that use them by turning liquidity from a cost into a revenue source. No longer are the days where projects need to offer inflationary rewards in exchange for liquidity. Vaults enable community members and crypto treasuries to build deep liquidity, while earning passive yield on their favorite tokens.
Because crypto projects can now use their treasuries to open profitable liquidity strategies that also help support the price of their tokens, Greedy Liquidity means that projects and their LPs are united in their incentives and more importantly their goals.
About ICHI
ICHI enables users to earn yield with any token using liquidity management strategies on Uniswap V3. ICHI started in 2020, has developed two protocols, and looks to continue growing its DeFi ecosystem. Learn more by visiting the ICHI website, Medium, Twitter, Telegram, or Discord.
