Pooled Liquidity Provision in DeFi: Concentrated Liquidity- Commissioned by Orca

The Block Research was commissioned by Orca to create “Pooled Liquidity Provision in DeFi: Concentrated Liquidity”. To access the full report in PDF format, please fill out the form below: 

 

This report provides insights into concentrated pooled liquidity provision on Automatic Market Makers (AMMs). AMMs have revolutionized decentralized exchanges (DEXes) and have turned out to be a major use case in DeFi, to the extent that they rival liquidity on centralized exchanges (CEXes). After Uniswap v3’s introduction of concentrated liquidity in 2021, it quickly gained market share among DEXes. Compared to infinite price range liquidity provision, concentrated liquidity can be much more capital efficient. However, the flipside is an increasing risk of impermanent loss for liquidity providers.

Concentrated liquidity providers are given more degrees of freedom to set their pool position. This leads to several different strategy setups, some of which may be better confined to sophisticated investors, or active liquidity management protocols. That seems to apply, for example, to liquidity provision of volatile token pairs, which may require frequent rebalancing to be profitable. Automatic liquidity management protocols may have advantages because of