Meow DeFi #4 - CLAMMpocalypsis

CLAMMs (aka. Concentrated Liquidity AMMs) are taking DeFi by storm. After two years of relative silence since UniV3’s release, the space is exploding with new solutions and forks of the old implementations.

The benefits of concentrated liquidity are apparent and mostly come down to capital efficiency - focusing funds inside one specific price range is inherently better than spreading them out across all possible prices.

However, most CLAMM designs are plagued by two issues - Impermanent Loss and bad UI/UX. Impermanent Loss isn’t real, so I won’t talk much about it here, but the difficulty of use is a real problem.

Liquidity Management remains a huge pain point for liquidity providers in CLAMMs. No matter how efficient the model is, if it requires rebalancing every 30 minutes and has uninformative/confusing UI, it becomes instantly inaccessible to 95% of DeFi users. So what can be done about it? Let’s look at some examples.

Maverick

Maverick protocol, deployed on zkSync and Ethereum, can be best described as a mix of TraderJoe’s Liquidity Book and UniswapV3. It discretizes liquidity into separate Bins, with each bin corresponding to a specific price range and price dependent on bin composition.

However, what really sets Maverick apart are their liquidity modes - mode right, mode left, mode both, and mode static. When an LP creates a position, they can choose one of these four.

Mode right, for example, will continuously shift liquidity to the bin left of the currently active one as the price increases. This strategy relies on the fact that the price never moves just in one direction and will dip back to the left, even in a continuous upward trend. When it does that, the position accumulates fees.

Mode left works in the opposite direction, shifting liquidity to the bin right of the active bin and relying on short upward movements to create fees. Mode both combines the two approaches and follows the price in both directions; it’s the riskiest but also the theoretically most lucrative mode of the three.

Mode static, as is evident from its name, doesn’t do anything and keeps liquidity where it was deposited.

These are all relatively straightforward strategies, but they already offer massive improvements for liquidity providers. LPs with bearish/bullish outlooks can set and forget their mode left/right positions, as they will collect fees and adapt to the market without any intervention needed.

Carbon

For those, who aren’t satisfied with simply moving their liquidity around, Carbon offers a few more advanced options. An offshoot of now infamous Bancor, their core value proposition is one-directional liquidity.

When CL was first introduced, it allowed for on-chain limit orders, which is a commonly requested feature for any DEX. However, those “limit orders” were not particularly useful since they would revert unless a user withdraws liquidity.

Carbon solves this problem by letting users choose in which direction their liquidity trades. LPs can set irreversible limit orders or even combine those orders into recurring strategies.

Once a Carbon order is filled, the tokens are removed from the liquidity pool and, in case of a recurring strategy, added to the opposite side. The simplest example of such a strategy is “crab trading” - buying an asset if it dips into a specified range and selling if it reaches a target price.

With exchanges like Carbon, the line between CLAMMs and CLOBs becomes even more blurred (assuming this line ever existed, to begin with). Just one look at the interface is enough to see how close the experience is getting.

Revert

Revert isn’t some rebalancing vault or a DEX, but I wanted to make another point about interfaces when it comes to CLAMMs. There is no way to put it lightly, but most of them absolutely suck. Simply tracking a position’s performance is often hard enough, and that’s before you even attempt to do something more complex.

Which is what makes Revert so cool. They provide “Actionable analytics for AMM liquidity providers” and currently support Sushi and Uniswap.

Data includes historical prices/fees, divergence losses, collected/uncollected/compounded fees and much more. The platform also comes with various management tools and a backtesting calculator.

It’s insane how much info there is and how well it all works, and I really hope they add support for more exchanges soon (Balancer and Curve already promised).

Meow

These three projects are just scratching the surface of what’s possible with a CLAMM. Countless protocols are building on top of CLAMMs, trying to make them more user-friendly and efficient; countless more are still in development. Maybe, they’ll get their own issue one day.

IMO, CLAMM-adjacent space is the most exciting vertical in DeFi right now. Remember all those threads about CL being a new DeFI primitive? Seems like it’s finally happening. People will obviously continue trading meme coins on UniV2, but that’s nothing more than echoes of a bygone era.

Also, Liquidity Book’s autopools are coming out this month (hopefully?), and if rumours and hype are to be trusted, they might finally bring CL to the mainstream.

Disclawmer

This is a work of fiction. Names, characters, protocols, events and incidents are the products of the author's imagination. Any resemblance to actual persons, living or dead, or actual events is purely coincidental. Not financial advice.