Just wanted to add that the APRs are going to be highly correlated to volume that goes through the LP. In bull market (e.g. the past 6 months, pretty much), there's tons of liquidity in the market so volume is very high. Not so much in a bear market.
That said, LPs are a great way to earn passively during the lull of the bull & bear market as prices tend to chop sideways (hence keeping your positions active, assuming CLMM). But during the ramp up / wind down of a bull and a bear market, respectively, CLMM LPs is just a PITA as you have to "baby" the ranges to make sure that your LP doesn't go out of range.
I've also used CLMM LPs as kind of an on-chain take-profit / stop-loss mechanism by creating an LP just outside of current prices. That way, I only need to provide the token I'm "selling".
For example, if the current SUI price is $3.20 and I create a SUI/USDC LP at 3.50 to 4.00, if SUI reaches 4.10, all of my SUI becomes USDC with average sell-price of 3.75 (middle of the LP range). Because the LP is out of bounds, I only need to provide SUI when creating the LP.
If I don't take it out and SUI reaches 3.49 again, then all of my SUI is back (and some because of fees).
The same works the other way, so it becomes a buy low mechanism assuming you close off the LP by the time it falls through the bottom of the range.
Thanks for taking the time to write this out. Yeah it's been my experience as well that LPs get really tricky in a downturn. I struggled with mine back in February when the markets were sluggish.
I've also seen a few folks use the LPs as a way to ladder up or ladder down, and have always found that to be a really cool use of AMMs. :)
Good article. LP farming is also my favorite strategy in the DeFi world: easy to understand where the yield came from, no trading needed, very profitable. Good luck with your investments and keep aware of Impermanent Loss!
He mentioned BTC/ETH in Aerodrome & SOL/USDC in Orca. That would be Aerodrome Finance and Orca Finance.
I'm only familiar with Aerodrome Finance on BASE Network & I use CoinsPH for my onramp & offramp so I'll use those examples but the process would generally be the same.
I'm going to assume that you're familiar with on-chain transactions & you already have a wallet on your target chain (BASE in my example).
If the goal is to create a BTC/ETH LP, you would do the ff:
1. Deposit PHP into CoinsPH (via Instapay, maybe)
2. Buy ETH on CoinsPH
3. Withdraw ETH on-chain to BASE network
4. Go to Aerodrome Finance on BASE
5. Swap half of your ETH to cbBTC (this is Coinbase Wrapped BTC)
6. Go to "Liquidity" tab
7. Search for WETH/cbBTC
8. Look for the one with the highest TVL (Total Value Locked) and Add liquidity there
9. Pick 3%/8%/15% in the Price Range. This will change your APR.
10. Put in how much WETH you want to deposit and the cbBTC part would generally be autocomputed.
11. Deposit and then just forget about it for a while
12. Go back and harvest AERO (and maybe sell to USDC)
This is a HOWTO guide, but take note that there are tons of factors that I'm leaving out here. DYOR even though I gave you the instructions.
Just wanted to add that the APRs are going to be highly correlated to volume that goes through the LP. In bull market (e.g. the past 6 months, pretty much), there's tons of liquidity in the market so volume is very high. Not so much in a bear market.
That said, LPs are a great way to earn passively during the lull of the bull & bear market as prices tend to chop sideways (hence keeping your positions active, assuming CLMM). But during the ramp up / wind down of a bull and a bear market, respectively, CLMM LPs is just a PITA as you have to "baby" the ranges to make sure that your LP doesn't go out of range.
I've also used CLMM LPs as kind of an on-chain take-profit / stop-loss mechanism by creating an LP just outside of current prices. That way, I only need to provide the token I'm "selling".
For example, if the current SUI price is $3.20 and I create a SUI/USDC LP at 3.50 to 4.00, if SUI reaches 4.10, all of my SUI becomes USDC with average sell-price of 3.75 (middle of the LP range). Because the LP is out of bounds, I only need to provide SUI when creating the LP.
If I don't take it out and SUI reaches 3.49 again, then all of my SUI is back (and some because of fees).
The same works the other way, so it becomes a buy low mechanism assuming you close off the LP by the time it falls through the bottom of the range.
Thanks for taking the time to write this out. Yeah it's been my experience as well that LPs get really tricky in a downturn. I struggled with mine back in February when the markets were sluggish.
I've also seen a few folks use the LPs as a way to ladder up or ladder down, and have always found that to be a really cool use of AMMs. :)
Good article. LP farming is also my favorite strategy in the DeFi world: easy to understand where the yield came from, no trading needed, very profitable. Good luck with your investments and keep aware of Impermanent Loss!
Wow , this is great info. Thank you.
May I know where did you do LP farming to kick start my journey to learning this and doing same as you did?
He mentioned BTC/ETH in Aerodrome & SOL/USDC in Orca. That would be Aerodrome Finance and Orca Finance.
I'm only familiar with Aerodrome Finance on BASE Network & I use CoinsPH for my onramp & offramp so I'll use those examples but the process would generally be the same.
I'm going to assume that you're familiar with on-chain transactions & you already have a wallet on your target chain (BASE in my example).
If the goal is to create a BTC/ETH LP, you would do the ff:
1. Deposit PHP into CoinsPH (via Instapay, maybe)
2. Buy ETH on CoinsPH
3. Withdraw ETH on-chain to BASE network
4. Go to Aerodrome Finance on BASE
5. Swap half of your ETH to cbBTC (this is Coinbase Wrapped BTC)
6. Go to "Liquidity" tab
7. Search for WETH/cbBTC
8. Look for the one with the highest TVL (Total Value Locked) and Add liquidity there
9. Pick 3%/8%/15% in the Price Range. This will change your APR.
10. Put in how much WETH you want to deposit and the cbBTC part would generally be autocomputed.
11. Deposit and then just forget about it for a while
12. Go back and harvest AERO (and maybe sell to USDC)
This is a HOWTO guide, but take note that there are tons of factors that I'm leaving out here. DYOR even though I gave you the instructions.
Good luck!