V3 Liquidity (concentrated)
Camelot V3 allows liquidity providers to focus their capital in specific price ranges, resulting in more liquidity at preferred prices. Unlike v2, which mandates liquidity provision across the entire price curve, v3 lets liquidity providers concentrate their capital where it could generate the most significant profits
Providing liquidity on V3, harvesting rewards and withdrawing the LP
Select a pair
Start by choosing the pair you wish to provide as liquidity. Consider factors such as trading volume, TVL, and the risk of price volatility in the future. You can access data about token pairs on the pools V3 tab or the analytics page
Set a range
When setting the range, you may either use four presets or enter the minimum and maximum prices according to your strategy. The smaller the range, the higher the yield, but there is also a greater risk of impermanent loss When deciding on a price range, it's important to think about how much you expect prices to change during the time that you're holding your position. You'll also need to think about how much time and effort you're willing to put into managing your position as market conditions change, as well as the costs involved in making those changes
If the price of the assets you're providing liquidity for goes outside of the range you've specified, then your position will become focused on one asset or the other. You won't earn any trading fees until the price returns to within your specified range
Please note that the price you enter will be rounded to the nearest tick. It is not necessary to enter a round number, as this is a characteristic of how ticks function
Input amounts
Input the amount in one box, and the other box will automatically display the corresponding amount. The ratio between the two amounts depends on your price range relative to the market price. If your price range is closer to one side of the market price, you will provide more of that asset. If you click the ‘Full range button, you can provide liquidity across the full range, as in v2
Liquidity providers have the option to allocate liquidity on one side of the market, either above or below the current spot price, depending on whether they are provisioning the token with a higher or lower value
Approve and Add
To confirm the transaction, first approve it. This is only required for the initial liquidity provision with a token. After approving, preview the details and then click Add to execute the transaction from your wallet
Earn and manage
Your assets are now providing liquidity and earning trading fees. You can manage and track your positions by accessing the "Earn" tab and clicking on "Positions"
Unbind/add liquidity and harvest
On the V3 position management panel, you can view your position data and pending earned fees. You can also access the following features:
Unbind: (withdraw liquidity)
Add:(add more liquidity to your position)
Harvest: (harvest your pending rewards)
Example - Let's assume you've already provided liquidity to the V3 ETH/USDC pool within the range of 2000-2500 per ETH ⬇️
You've added 1 $ETH and 2250 $USDC to the pool. The current price of $ETH is $2250. Your liquidity is active and earning fees
Over the next few days, the price of $ETH increases to $2400, remaining within your specified range. Your liquidity continues to be active, and you keep earning fees
The price of $ETH further rises to $2600, now outside your range. Your liquidity becomes inactive, and you stop earning fees. The ETH/USDC ratio in your position has changed due to trades happening within the range; you now have more $USDC and less $ETH in your position
After a week, the price of $ETH falls back to 2300 USDC, which is within your range again. Your liquidity becomes active, and you resume earning fees
After a month, you decide to remove your liquidity from the pool. You withdraw your position, which now consists of 0.91 ETH and 2555 USDC due to trades and fees collected during the time your liquidity was active. The composition of your assets has changed, but the overall value has increased due to the fees earned
Single-sided liquidity providing
Single-sided liquidity providing is a feature in the V3 that allows liquidity providers to deposit a single asset instead of both assets in a trading pair. This feature is intended to give liquidity providers more flexibility and reduce the risk associated with providing liquidity.
Here's an example to help illustrate single-sided liquidity providing:
Let's assume that Galahad have 0.01 ETH and want to provide single-sided liquidity on V3 within the price range of 2999-3999 USD for each ETH
Currently, the price of ETH is $1855.9, which is outside of your chosen price range ($2999-$3999). This means that Galahad's provided liquidity will not be active at the current price and will not start earning fees until the price of ETH enters your specified range
If the price of ETH were to increase and enter the $2999-3999 range, Galahad's 0.01 ETH would then be used as single-sided liquidity in the pool. Galahad would start earning fees from the trading activity involving ETH within this price range. If the price of ETH were to fall or rise beyond your specified range, Galahad's liquidity would once again become inactive and stop earning fees
Here are some key points to keep in mind about single-sided liquidity providing in V3:
Single-sided liquidity providing allows liquidity providers to deposit only one asset instead of both assets in a trading pair
V3 uses the current price of the assets to calculate the correct amount of the other asset needed to create the trading pair
Single-sided liquidity providing can reduce the risk associated with providing liquidity since liquidity providers don't have to worry about the value of both assets in the trading pair
Liquidity providers can still earn trading fees even if they only provide one asset to the pool
Single-sided liquidity providing is a useful feature for liquidity providers who may not have both assets on hand or want to reduce their risk exposure
Please be aware of the risks of impermanent loss, especially when using narrow ranges. More detailed information about it and V3 concentrated liquidity can be found on the following page
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