(Pt. 3) Size matters, Smilee Concentrated Liquidity Market Maker delivers it—the final unveiling of v1.69
Concentrated liquidity. Two inescapable words in DeFi these days, and rightfully so.
Smilee v1 faced quite a number of limitations, most of which traced back to the same thing…
“How can I use Impermanent Gain to hedge IL on my Uniswap v3 (or insert CLMM here) LP position?”
“WHY is there practically ZERO capacity to mint Impermanent Gain options???”
And so on. The culprit? Full-range liquidity provision.
DeFi and its participants have made it abundantly clear that concentrated liquidity is the clear path forward.
And now, so is Smilee…
Say henlo to Concentrated Liquidity on Smilee v1.69 🤌
With it, bringing a multitude of protocol-wide benefits:
- Up to ~26x more yield for LPs using Real Yield
- Up to ~26x more Impermanent Gain vault capacity
- Better IL hedging
- Improved composability with DEXs & protocols working with concentrated liquidity
- And more!
Let’s dive a little deeper into what exactly concentrated liquidity means for both Smilee v1.69 volatility products starting with:
Real Yield
Liquidity providers deposit assets to pre-set concentrated liquidity ranges with auto-rebalancing. In turn, enables/generates fees from users minting and trading Impermanent Gain options.
Each vault will be set at 2 or 3 standard deviations (sigma) from the token price at the moment of rebalance. The optimal sigma will be tested throughout the next trading competition.
In the end, you’re left with higher yields without the hassle of manually selecting and managing your ranges. How much higher? 👇
~3–26x more yield!
Additionally, pre-set liquidity ranges eliminates notorious pitfalls seen across the dark forest of liquidity provision in DeFi. By creating all liquidity positions equal, we purge:
1. Toxic order flow
Defined as a trader’s exposure to the risk of counterparties taking advantage of private or privileged information to create disadvantages for traders and market makers.
If you aren’t familiar with toxic order flow and how it affects LPs, check out this thread.
On Smilee, Real Yield depositors are selling volatility, and unaffected by the quality of orders executed by Impermanent Gain traders.
2. Competition & JITL bots
LPing is highly competitive, and ultra PvP (or player vs. bot). It’s extremely hard for most participants to LP at optimal times when you’re up against sophisticated systems & bots.
This scenario isn’t possible with pre-set ranges & fixed epochs on Smilee.
In conclusion, Real Yield is about to get far more profitable, simple to use, and robust vs. other yield-generating vehicles in DeFi.
Impermanent Gain
SIZE MATTERS—and now, you can trade Impermanent Gain with far more size.
By concentrating the liquidity in the Real Yield vaults—the counterparty to Impermanent Gain— the portfolio of Impermanent Gain options narrows closer ‘to-the-money’ (ATM) causing them to grow exponentially.
In simple terms, it allows us to mint far more options without requiring insane amounts of liquidity.
How much size?? 👇
~3–26x more capacity to mint options!
To put that into perspective, if there was $100k in liquidity in Real Yield (50% vol & 7 day expiry):
- there would’ve been up to $3,114.80 worth of Impermanent Gain options to mint on Smilee v1
vs.
- $31,560.88 worth of Impermanent Gain options on Smilee v1.69!
In addition, hedging Impermanent Loss (IL) just got WAY better!
Since liquidity has concentrated ranges on Real Yield, it makes Impermanent Gain far more symmetrical to your average LP position on any given CLMM or automated liquidity management tool outside of Smilee.
Ok ok ok, what’s the catch? A smol one. By narrowing the options closer to the money (ATM), and minting fewer deep outside of the money (OTM), we forfeit a bit of profit potential on the tails.
The tails? You start to feel it at +600%… therefore limited to extreme volatility events. When you take the newfound ability to trade Impermanent Gain with significantly more size, it arguably renders this ‘catch’ a non-factor.
All in all, concentrated liquidity on Smilee v1.69 is a massive improvement for both Real Yield & Impermanent Gain—way more yield, much more size, improved IL hedging, and much more integration opportunities. 🤌
