YIN Finance’s Unique Advantages In Active Liquidity Mining
Let’s take a closer look at how YIN Finance is changing the liquidity game through its active liquidity adjustments.
A large proportion (77%) of users who use Uniswap V3 are still considered passive liquidity providers. This means they are losing out on maximizing their yield because many users rarely adjust their liquidity positions. They are static in a market that is continually fluctuating, which means that the liquidity (and therefore the yield), is not optimized. In fact, less than 1% of users are actively managing their liquidity.
While some users might be content with passive liquidity management, projects like YIN Finance are entering uncharted territory with its unique active liquidity management platform.
Let’s look at the similarities and differences between active and passive liquidity and dive into YIN Finance’s unique competitive advantages.
Liquidity Mining
Liquidity mining is the act of providing liquidity via cryptocurrencies to decentralized exchanges (DEXs), like YIN Finance.
Most DEXs are decentralized by replacing order books with an automatic market maker (AMM), which utilizes a smart contract that regulates trading. Since smart contracts are decentralized, users do not have to trade by referring to the order book of an exchange — allowing for orders instead to be placed through the smart contract and the platform itself.
Here’s how it works: Users provide liquidity to an AMM. In other words, users deposit equal value of a paired token, for example, USDT and YIN, into a liquidity pool. Then, other users (token swappers) can lend, exchange or, in general, use those tokens for their own purposes. These token swappers pay a small fee per transaction, and those fees are accumulated and later distributed among all the liquidity providers (LPs). The pool automatically adjusts the prices within, and corresponds with oracles to settle spot prices based on the corresponding liquidity of each asset within the pool.
Many platforms offer further incentives in the form of tokens to users who provide liquidity. Thus, backers receive additional cryptocurrencies for using the service, which can be freely traded on the market or used as voting rights in the project’s governance.
Note: Rewards can be distributed as a different token than those deposited. For example, let’s say Bob wants to provide liquidity into the USDC/USDT on YIN Finance. He deposits both tokens in the smart contract, and he will receive rewards in YIN, as opposed to USDC or USDT.
YIN Finance & Uniswap V3
Uniswap V3 presents a significant change to the AMM model by increasing the customizability of LPs to allow users flexibility when pooling assets along a predetermined range of prices instead.
In the case of Uniswap V3, LPs don’t just put their assets in liquidity pools evenly along a curve. Instead, they get to choose the price range they want to allocate their assets to and earn from fees when the price is within the selected price range.
Let’s look at this active liquidity through an example.
Imagine that you put 1 ETH and 2,000 DAI in an ETH/DAI liquidity pool, and you set $1,950–$2,050 as the price range. What you are saying is:
“Take these assets and put them in the pool. So whenever someone buys ETH for any amount of DAI between 1,950–2,050 DAI, I get the fees from that swap. If ETH’s price is outside that range, I don’t receive any fees.”
Passive Liquidity
Before Uniswap introduced V3, if market prices moved outside an LP’s specified price range, a user’s liquidity was essentially removed from the pool and no longer earned fees. In this state, an LP’s liquidity is composed entirely of the less valuable of the two assets until the market price moves back into their specified price range, or they decide to update their range to account for current prices.
A passive address is an address that only owns one liquidity position and has not made any changes to it since. This is the true definition of a lazy liquidity provider.
Passive, simple liquidity positions still dominate DeFi, and most positions are managed in a discretionary, unoptimized manner. For other LPs using Uniswap V3, fees are not re-deposited. Instead, fee earnings are stored separately and held as the tokens in which the fees are paid.
The majority of liquidity providers on other platforms are considered passive. While this is simpler for users, it’s not optimal for yield or liquidity. YIN Finance aims to change that through active liquidity management, which dynamically tracks pricing to optimize liquidity, in turn optimizing returns for users. Additionally, YIN Finance will cover the fee for adjusting positions.
Active Liquidity
Active liquidity management means protocols like YIN Finance manage users’ assets in top pools on Uniswap V3 with fee optimization and market-making strategies to give them the highest possible ROI on their liquidity position.
In V3, it is theoretically possible for no liquidity to exist in a given price range. Despite this, YIN Finance will continuously update its price ranges to cover the current market price.
Liquidity provisioning is no longer simple and passive but requires monitoring and strategic adjustments. This is where YIN Finance shines.
YIN Finance’s Competitive Advantage
YIN Finance is a proactive liquidity management platform where users can subscribe to its management strategies called CHIs (programmable strategy NFTs) in the contract to achieve effective high-yield liquidity management.
Benefits of YIN Finance
● Automatically Re-invested — In Uniswap V3, users need to manually collect fees to re-invest. YIN Finance will automatically re-invest for you.
● Multi-party Yield Mining — Managing liquidity with YIN Finance will not only earn fees and YIN, but YIN will audit reliability and support Uniswap V3 liquidity mining cooperatives to access mining, making multiple benefits available to you.
● Numerous Strategies — Subscribe to different CHIs according to your asset structure.
While competitors in the space share similar principles of active liquidity management, several major distinctions exist. YIN Finance features third-party protocol mining, leveraged liquidity providing, plans for a multi-chain launch, user-created liquidity strategies, and its official platform strategies are focused on low-volatility stablecoins, ensuring stability for its users.
Conclusion
Trading on decentralized exchanges via AMMs is on the rise and enables investors to earn passive income. Uniswap V3 not only allows a higher return on capital for its users but also brings new possibilities to the developer community to build an ecosystem around it.
While passive liquidity management far outweighs active liquidity, the gap is a significant opportunity for new protocols to build automated on-chain strategies that help actively manage liquidity assets. This is what YIN Finance does.
YIN Finance was created to solve the main issues within the existing landscape of liquidity mining in DeFi: discoverability, reputation, programmability, and liquidity security. To solve these problems, YIN Finance introduced active liquidity mining and NFT Smart Vaults, called YANG vaults.
YIN Finance is a unique protocol with an ambitious roadmap. It aims to provide proactive liquidity management services on various public chains and DEXs. Currently, it is deployed on Ethereum and will be deployed on Polygon and Solana soon.
