Liquidity and Yield farming
V3
How does V3 manual mode function?
In other words, concentrated liquidity allows providing liquidity for specific prices you like, instead of sharing all your liquidity across the whole range. It's like only sharing your favourite toys, instead of sharing all of your toys, with your friends
Example of the mechanics
For volatile pair, an LP could provide liquidity for a price range of $1.10 - $1.30. This means that liquidity would only be used within that price range, allowing for more targeted liquidity provision In a stable pair, a liquidity provider may opt to allocate their capital only to the range of $0.995-$1.005. This can result in deeper liquidity for traders around the mid-price, and the LP can earn more trading fees using their capital
If you would like to learn how to use V3, refer to the following guide
What is the difference between Auto mode and Manual mode?
Manual mode is designed for experienced liquidity providers, giving them control over the price ranges of the liquidity they offer
Auto mode utilizes focused liquidity management strategies, handling the intricate task of adjusting price ranges for users
From the user's point of view, the process is quite simple - If the pair of your position is incentivized with market maker rewards, you will receive additional rewards on top of the trading fees that are harvestable in the positions section of the dapp's interface.
Through V2, liquidity providers deposit equal amounts of two assets (50:50) in a liquidity pool, which is then used to facilitate trades between those assets. This can lead to idle capital, as the liquidity provider's funds may not always be utilized fully. Additionally, the fixed ratios of the deposited assets can limit trading flexibility and result in higher fees for traders
How does V3 enhance the protocol?
What are the main differences between V2 and V3?
V3 allows liquidity providers to concentrate their liquidity at specific price points, leading to more efficient use of capital and higher capital efficiency
V3 concentrated liquidity model allows for more precise pricing and lower slippage for traders, especially in volatile markets
V3 liquidity range orders can help traders execute trades more efficiently, as they can specify the price range they want to trade in ranges and adjust positions as market conditions change
V3 offers more granular control over liquidity positions, with the ability to create custom tick
V3 has lower gas costs and is more gas-efficient than V2
Does Camelot charge higher fees for swaps that use concentrated liquidity, and if not, how can the APR be higher when using concentrated liquidity?
How should price ranges be selected?
Consider how much prices are likely to move during the lifetime of your position
Be willing to actively manage the position as the market changes
Take into account the economics of the transactions required to manage the position
If prices move outside your specified range, your position will be concentrated in one asset and you won't earn trading fees until prices return to the range
Providing liquidity across the full range is an option, but it will result in a lower rate of return than a narrower range
Range presets
Full range - Liquidity is provided across the entire price range of the asset being traded. This can be useful for assets that have a wide trading range or are subject to high volatility
Wide range - Liquidity is concentrated in a wider price range. This can be useful for assets with moderate volatility, as it provides sufficient liquidity across a range of prices
Common range - Liquidity is concentrated in both the buy and sell range around the current market price
Narrow range Liquidity is concentrated in a specific price range, usually close to the current market price. This can be useful for assets that have relatively stable prices, as it reduces the amount of capital required to provide liquidity while still maintaining efficient trading
Is my position liquidated if the price exceeds my price range?
If the price of a trading pair goes beyond the range that you set for your LP, then your position will only consist of the less valuable asset in that pair
For instance, if your price range for ETH/USDC is 555-1555, and ETH drops to 550, then your balance will only be in ETH. On the other hand, if ETH increases to 1560, then your balance will only be in USDC
When the price remains outside of your specified range, your position will be in an out of range mode, which means that you will not earn any fees until the price returns to your set range
How APR for trading fees is calculated?
Can I create a custom token pair in V3?
Can I withdraw my concentrated liquidity at any time?
How are fees earned and distributed in concentrated liquidity pools?
Will V2 pools ever be discontinued?
V2 and Exchange
Why am I unable to set the amount in the top box on the frontend exchange page?
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