Liquidity Provision

Liquidity provision is a way to let your tokens work for you by pooling them with others on a decentralized exchange.

When you deposit your tokens into a liquidity pool, you help facilitate trades between different tokens without needing a direct buyer or seller at that moment. Every time someone makes a trade, you earn a small fee.

This generates passive income for you, though it comes with risks like impermanent loss, if the token values change a lot, you might end up with a different balance than you started with. In short, if you're comfortable with a bit of market unpredictability and want your idle tokens to earn money, liquidity provision can be a smart move.

How to add Liquidity Provision to your strategy

Liquidity may seem complex to setup, but it can also be the most rewarding in terms of profits if setup correctly.

Recommended Tools

When creating liquidity pools there are some tools to assist you picking optimal exchanges, token pairs and ranges, here are some of them:

Investment Setup

Select the "Liquidity" product.
Set the percentage of the total investment that you want to allocate for this specific Liquidity Pool.
Pick the two tokens you want to add liquidity for.
Select the Exchange you want to add liquidity to, available exchanges will vary based on the selected chain of the strategy, different exchanges may have different pools and different returns.
Now the last and most important, selecting the range, this can be broken down in the following steps:
- Inverting Tokens: Click the "USDC per WBTC" button (or the equivalent for your pair) to invert the token order. This displays the price of the more expensive token over the less expensive one. For example, showing 100,000 USDC per BTC instead of 0.00001 BTC per USDC, which is much easier to read.

Setting Your Price Range

When setting up a liquidity investment, you're choosing between two options: Real-Time or Pre-Set ranges. Think of it as customizing your experience, one adapts to market conditions when you invest, the other stays exactly as the creator intended.

Real-Time Range vs Pre-Set Range:
- Real-Time Range - Uses the current market prices when you invest. If a strategy creator set a range of -10% to +20%, and you invest when BTC is at $60,000, your position will be created with a range from $54,000 to $72,000. If another investor joins the same strategy a month later when BTC is at $70,000, their position will have a different range: $63,000 to $84,000. The strategy stays valid forever, but your specific position can still go out of range as prices move, just like any liquidity position. What's "timeless" is the strategy itself, not your position's profitability.
- Pre-Set Range - Uses fixed price points that the strategy creator defined. If they set a specific range of $54,000 to $72,000 for BTC, this exact range applies whether you invest today or months later, regardless of BTC's current price. This approach works best when the creator has strong convictions about a specific price zone. If the market moves significantly away from this range, your position will stop earning fees until prices return to the specified band.

Remember, choosing the right range type is like choosing the right dating app, it all depends on what you're looking for and how committed you are to your position.

Setting the Bounds: Adjust the upper and lower range limits by entering values on the right or by dragging the slider on the left. You can also fine-tune each value using the "-" and "+" buttons.

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Last updated 13 days ago

How to add Liquidity Provision to your strategy

Liquidity may seem complex to setup, but it can also be the most rewarding in terms of profits if setup correctly.

Make sure you are already familiar with creating a strategy, otherwise take a moment to guide before continuing!

Recommended Tools

When creating liquidity pools there are some tools to assist you picking optimal exchanges, token pairs and ranges, here are some of them:

: Simulate a position before its creation, this is a powerful tool to assist you on picking the correct range, but take it with a grain of salt as past performance don't mean future returns.

: Another position simulator, great for analysing ranges and with a "backtesting" functionality to see how that pool would have performed, including impermanent loss calculation.

Investment Setup

Select the "Liquidity" product.

Set the percentage of the total investment that you want to allocate for this specific Liquidity Pool.

Pick the two tokens you want to add liquidity for.

Select the Exchange you want to add liquidity to, available exchanges will vary based on the selected chain of the strategy, different exchanges may have different pools and different returns.

Select one of the fee tiers available, the one with the higher usage percentage (represented by "x% Pick") is usually the best option, but it is always nice to validate that using the above.

Now the last and most important, selecting the range, this can be broken down in the following steps:

Inverting Tokens: Click the "USDC per WBTC" button (or the equivalent for your pair) to invert the token order. This displays the price of the more expensive token over the less expensive one. For example, showing 100,000 USDC per BTC instead of 0.00001 BTC per USDC, which is much easier to read.

Setting Your Price Range

Real-Time Range vs Pre-Set Range:

Real-Time Range - Uses the current market prices when you invest. If a strategy creator set a range of -10% to +20%, and you invest when BTC is at $60,000, your position will be created with a range from $54,000 to $72,000. If another investor joins the same strategy a month later when BTC is at $70,000, their position will have a different range: $63,000 to $84,000. The strategy stays valid forever, but your specific position can still go out of range as prices move, just like any liquidity position. What's "timeless" is the strategy itself, not your position's profitability.
Pre-Set Range - Uses fixed price points that the strategy creator defined. If they set a specific range of $54,000 to $72,000 for BTC, this exact range applies whether you invest today or months later, regardless of BTC's current price. This approach works best when the creator has strong convictions about a specific price zone. If the market moves significantly away from this range, your position will stop earning fees until prices return to the specified band.

Remember, choosing the right range type is like choosing the right dating app, it all depends on what you're looking for and how committed you are to your position.

Setting the Bounds: Adjust the upper and lower range limits by entering values on the right or by dragging the slider on the left. You can also fine-tune each value using the "-" and "+" buttons.