It’s nice to say that the dex is open financne for all, but in reallity specialized profesionals will bring high volumes on the dex( 99% of the people out there still can’t create a website). And there is nothing wrong with that. Beginners will learn from their mistakes and they will improve in order to compete. Traders expect high speculative rewards from buying low and selling high. Liquidity providers expect high apr rewards( not locked). I understand that there was a problem with FTX dumping Mex. That’s why mex rewards are now locked. That’s why we need concentraded liquidity implemented asap, so the rewards are in multiple tokens. Finally Dex owners (Mex investors) expect to get fees pool rewards from all trades, and minimum, if not zero dilution of their stake (Mex locked). There is competition between traders, between liquidity providers and between xMex investors. The higher the competition, the more successful the dex will be. There will be winners and losers along the way. If the DeX follows this path, I believe it has high chances to succeed.
That’s why we need concentraded liquidity implemented asap, so the rewards are in multiple tokens.
What does concentrated liquidity have to do with the rewards in multiple tokens? Not sure I understand this part.
concentrated liquidity will lead to higher volume because the liquidity is more efficient and allows for larger swaps - and more volume means more collected fees and thus more rewards and more burning
I mean that with concentrated liquidity the DEX will have higher aprs on the pools for specific price ranges. So there will be no need for locked farm rewards. Liquidity providers dont want locked rewards. So the ones who want high aprs will choose specific price ranges, in order to achieve that.
I partially agree with @cottoneyejoe on the aspect that it might create larger volumes as long as oportunity for arbitraging exist, not because of regular trading. I doubt people will buy significantly more just because the price is harder to move. In fact, for regular trading it might be see even less volume because price action is lower.
In my opinion, the idea that concentrated liquidity brings higher APRs is a dangerous mirage because of the following: if everybody concentrates the liquidity on the same price range, APR is basically the same. If ranges are different between people, some will see more, some will see less, but in average it should be pretty much the same. What people don’t usually consider correctly in concentrated liquidity is the added effect that impermanent loss will be much more accentuated for the users who concentrate on tight ranges (for high APR) but whose liquidity moves 100% to one side because the price leaves their range. That’s where APRs quickly become unfeasible.
I’m not against concentrated liquidity. I very much want it in order to stabilize movements, but I highly doubt people would correctly understand it and allocate time to manage it and I fear that in effect it will either lead to lower liquidity as people shy away from it afterwards, or the majority just spread on really wide ranges and it leads ultimately to a minority of active users taking significant more risks for no moon-high APRs.
Nevertheless, concentrated liquidity will be necessary to be deployed, but I doubt it solves the need to allocate additional rewards as incentives.
Incorrect.
Because concentrated liquidity will enable more efficient swaps and thus more arbitrage which will lead to more volume, APR is higher.
Again incorrect. On average it should be much higher than before
Again incorrect. The more concentrated the liquidity, the LESS impermanent loss
CLMMs existed for years on other networks and it works fine and people use it just fine every day.
Why do you think MultiversX users will be too stupid to use it compared to users on other networks?
As i already said… the team can even offer an option of automatically setting the liquidity range for the user. Yes additional work to implement it but this is a pretty cool feature modern CLMMs usually offer
Again… On other chains it lead to even more liquidity as Impermanent loss is less and rewards are higher. And people use it just fine without issue. Why do you think these chains are using it just fine and we on MultiversX will have such issues with it (that no one else ever had)?
Actually when liquidity is more concentrated, the possible imprermanent loss is higher. Which makes sense. Since in that case you are looking for higher aprs(higher rewards), therefore you are taking more risk( more impermanent loss).
No that is totally false. Completely false
By concentrating the liquidity more you have less and less and less IL but more and more APR
If you don’t know something, check it on chat gpt mate. But dont act like you know something if you dont, because you confuse other people here as well. I am sending you the response from chat gpt. You are welcome.
No I am not welcome.
First of all your prompt is not good. Second of all your asked the question wrong.
By actively managing the position and the price of your own provided liquidity, you can mitigate impermanent loss a lot - and modern CLMM DEXes have these tools automated that even do it for you! They automatically set the price ranges for you, so you aren’t in danger of IL.
If you do it right, IL is much lower than normal AMMs.
Of course if you have absolutely no idea and also do not utilize any automation tools, IL is higher
But at least in that case, you can swap back to the token you wanted for very cheaply because the liquidity is so efficient - and you actually get stopped out at the price range you set! So for example you can even use this as a sort of DCA, to DCA into or out of an asset and furthermore you can use it as a “stop” marker to not lose more money than with the price barriers you set.
All of this is not possible on normal AMMs.
Alright this answer makes much more sense. Yeah maybe with all the automated management of liquidity on top you might be right. I was talking about the simple scenario, without using extra tools. Anyway I want concentrated liquidity as well, because obviously that’s the next needed step.
I’m not here to argue and I think you are missing the point on some things I am trying to convey.
For example, given that one liquidity pool gives 0.3% swap fees for liquidity providers, if all liquidity providers spread their liquidity over the same range, all of them will share that 0.3% income. They won’t earn any more than those 0.3% and no one is the wiser if they’re all the same. Actively managing a position on tighter ranges than the others can truly pay out more as long as the volume of the swaps stay within that specific range. If the price gets out of your range, your liquidity ends up 100% to one token, thus, depending on how much the price ended up and how fast people moved their liquidity again, that 100% in only one token is now worth the current price and may be subject to a new refreshed concentrated liquidity it has to worm its way upwards, so it might be quite bad especially in cases of pools with low liquidity where ranges can quickly vanish. This is why, in this case, the impermanent loss you now have is way worse.
Let’s look at others, coz you keep mentioning how great other do with CLMMs. Interestingly, almost 70% of all trades on Uniswap are conducted via V2 constant product pools, but V3 concentrated pools dominate by volume (84%). That’s because heavyweight pairs like ETH-USDC are mostly traded on V3. In fact, concentrated liquidity pools account for 99.2% of all stablecoin swapping volume.
Now, looking back at xExchange pairs, liquidity, volume and arbitraging opportunity to open up columes: CLMM would cripple a lot of users in a majority of pairs while only being TRULY beneficial for a small minority of pairs that take large volumes due to strong liquidity and open arbitrage opportunities but which don’t see crazy price action, for example EGLD vs USDC, USDT and maaaybe EGLD vs MEX since it’s slower. ETH, BTC pairs indeed have low liquidity, but their relatively short price action against EGLD could allow for tighter concentrations still.
These pairs generate volumes due to the fact that you have open 3 point arbitrage users can trade on to make a profit so any price action fluctuating on a tight range generates lots of fees.
For most of the other pairs, they are paired only against one token (either EGLD, MEX or USDC) so they don’t see activity driven by 3 point arbitrage to make a loop. In effect, most of the volumes these pairs see are coming from speculative trading. For these pairs, the entire tradeable market liquidity is concentrated in only one pair, therefore users will have to either spread on wide ranges or manage their positions like crazy if they don’t want to end up having 100% BOBERs overnight that suddenly cost 5 times less coz a lot of people concentrated on higher ranges in hopes of price going upwards and a whale suddenly dumped through your tight range and the low liquidity in the vecinity of that range it fell through like a swimming brick.
I don’t say it’s not useful to have CLMMs in this case, coz it can be to hold that price in a range as much as possible, but so far, activity on xExchange showed that after people get dumped on, it’s forks and axes time and this makes me reluctant on wanting to see how some situations might develop.
Maybe, as i said before, it would make sense to have a more gradual introduction of CLMMs on what’s more feasible and less risky first, on a handful of pairs for example, then slowly burning people into it and transitioning to a solution that it’s up to the owners to open whatever they want from that point on.
I might be wrong (tho I doubt it) or maybe I don’t know how to make myself understood on what I mean.
Their income will still be higher. Their APR will be higher. Because concentrated liquidity allows for more volume and thus more fees and more apr.
You forget that again.
Which proofs all my points! V3 allows for more efficiency. This means more volume. And more volume means more fees and more fees means more rewards for liquidity providers.
CLMMs don’t bring volumes just by existing. Volumes are brought by a necessity to buy or sell. If the necessity doesn’t change, volumes will be the same.
Volumes are brought, for example, by three point arbitrage on LPs or stablecoin LPs as it might be harder to move the price outside a reasonable range everyone expects those tokens to stick to.
CLMMs make existing liquidity more efficient.
Hence, for example the EGLD/BTC pair allows for more arbitrage and thus volume.
Same for EGLD/USDC, same for EGLD/USDT and same for all other even just minimally volatile pairs