đ°Liquidity and Yield Farming
Last updated
Last updated
How does V4 manual mode function?
V4 Concentrated liquidity allows liquidity providers on Kim to set custom price ranges for their tokens instead of evenly distributing them across the entire price range. This means that liquidity providers can concentrate their capital on specific price ranges where they believe there will be more trading activity, while still providing liquidity across a broader range of prices rather than the entire price range. In other words, concentrated liquidity allows providing liquidity for specific prices you like, instead of sharing all your liquidity across the whole range.
The unique aspect of Kim vs typical v3 concentrated liquidity comes from Algebra's integral system which allows for the usage of custom plugins (hooks) that can be invoked before or after certain activity.
More info on plugins (hooks) can be found on the Algebra docs portal at:
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
Merkl is a mechanism to incentivize Kim's V4 manual liquidity positions.
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.
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
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
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.
Fees are earned from swap transactions that occur within the specified price range set by the liquidity providers. These fees are automatically distributed proportionally to the liquidity providers based on the amount of liquidity they have contributed and the time they have been in the pool. For manual mode, pending rewards are harvestable on the V4 position management panel - when it comes to auto mode the LP fees auto-compounding in the LP.
