I deposited ~$180 into
@SectorOneDEX to experience and learn about DLMM pools as part of Wave 4
@megaeth terminal apps.
This is what I've learnt!
Dynamic Liquidity Market Making (DLMM) is a type of Liquidity provision where the key difference lies in Liquidity "bins" that significantly reduces slippage
These bins represent different prices of an asset. The difference between one bin to the next is a change in price by percentage.
The height of each bin represents the depth of liquidity.
Wider liquidity distribution = Less capital efficiency, lower risk and vice versa
How does this reduce slippage?
In a normal AMM, every swap changes price continuously along the curve which increases slippage.
In a DLMM, swaps execute against liquidity within a bin before spilling into the next bin which reduces slippage significantly.
Despite its strength, they do require active rebalancing as inventory composition changes aggressively when price exits range.
On a typical DLMM pool, there are 3 pre-set modes:
Curve (Most normal):
Concentrates Liquidity near active price for significantly lower slippage
> Good for assets during calm markets
Risks:
> Increased risk of IL
> Requires active monitoring
Spot:
Distributes liquidity evenly across chosen bins
> Good for stablecoin pairs because prices stay in a tiny range
> Deep liquidity results in very low slippage
Risks:
> If stablecoin depegs, LP will go out of range incurring losses and losing out on fees
> If used on other assets, volatility can cause LP to go out of range
Bid-Ask:
Typically used by users who want to LP and also have a market bias.
Liquidity is more concentrated on the extreme ends based on users' directional bias.
> Good for traders who have great predictions
Risks:
> Requires active balancing
> Higher risk as performance depends heavily on market direction
If you wish to skip the active management,
@SectorOneDEX DLMM vaults can help you with their curated vaults.
Curators earn fixed fees and actively manage LP position while users retain all fees earned, protocol points and airdrop rewards.
Pick a pool based on your risk appetite.
Ultimately, each strategy is based on each user's risk appetite and time availability.
DLMM pools offer a variety of ranges for the degens to the conservatives.
This is MY heaven! Wave 4 of
@megaeth apps are live and DeFi is the spotlight!
The protocols that piqued my interest are
@_canonic and
@SectorOneDEX
Both are DEXs but
> Canonic is a Mid-Anchored Order Book (MAOB)
> SectorOne is a Dynamic Liquidity Market Maker (DLMM)
These are 2 new terms for me and I really want to deposit some capital and dive into how they operate and differ from AMMs
This week is going to be fun!