🐳Add Liquidity
Last updated
Last updated
Providing liquidity in HorizonDEX, offers an opportunity to earn unparalleled returns on your capital. After the introduction of Concentrated Liquidity, liquidity provision became relatively harder compared to constant function AMM counterparts. Also the UX suffered from some frictions related to the CLMM design. HorizonDEX offers innovative solutions to several problems encountered in standard CLMM DEXs.
In DEXs where constant function market maker model is utilized, UX is as simple as it gets. User just approves tokens to be spent and deposits liquidity without any parameter adjustments. Frontends for dApps handle everything behind the scenes.
The same approach is not applicable for DEX which utilize Concentrated Liquidity because users need to select the price ranges they wish to provide liquidity to. The selection of price levels is not always straightforward, there are many angles to consider. If the range is too tight, it will earn more fees but it will also be more suspectible for impermanent loss and position can go out of range relatively quickly and stop earning fees. If the range is wide, latter issue is somewhat mitigated as the user doesn't need to be too much concerned with its liquidity going out of range. However wide-range liquidity earn less fees compared to tight ranges as the capital is distributed inefficiently.
It is obvious that it's a complex problem to find optimal parameters for Concentrated Liquidity positions. To overcome the issue, HorizonDEX offers Lazy LP feature where users can choose between 3 options: Active, Passive and Custom. If user selects Active or Passive range, the price levels are automatically selected by our dApp and all the heavy lifting is done behind the curtains.Active range means that the liquidity is automatically deployed to a tight range around price and the users needs to actively monitor the position to make sure it doesn't go out of range and stop earning fees. Passive option is for deploying liquidity to a relatively wider range around current price which doesn't require active maintenance and more suited towards users who seek passive investment option.
Of course users may choose to select custom ranges based on preferences by selecting th custom option and specifying the price levels themselves.We recommend this option to advanced users only.
In CFMM DEXs like Uniswap V2, the fees earned by the liquidity providers are auto-compounded. This enables a great user experience and better capital efficiency as you immediately start to earn from your newly acquired LP Fees. This feature of CFMM DEXs are sacrificed in CLMM DEXs and users need to manually claim the fees acrued to their LP positions.
HorizonDEX solves this issue with it's innovative re-investment curve that compounds all fees earned automatically over full price range. The auto-compounding feature alone, mathematically guarantees that you as a LP earn MORE compared to all other CL-DEXs that do not auto-compound as the compounding process will require gas and introduces friction. After all, why bother with manually re-investing when HorizonDEX does it automatically for you for ZERO cost ?
Select Tokens: As a liquidity provider, you need to choose the tokens you want to provide liquidity for. HorizonDEX supports a wide range of tokens, allowing you to participate in various trading pairs.
Select Fee Tiers: It is important to select an optimal fee tier for the pair you will be prividng liquidity to. It is generally recomended that pairs with high volatility in prices should prifer higher fees vs pairs that trade around similar price levels should go for lower fee tiers.
Specify Price Range: In HorizonDEX, liquidity providers have the flexibility to concentrate their liquidity within a custom price range. This means you can choose the specific price range where you want to allocate your funds. By doing so, you optimize liquidity provision for that particular range, improving trading conditions for users.
Deposit Tokens: After selecting the tokens and price range, you'll need to deposit an equal value of both tokens into the liquidity pool. For instance, if you're providing liquidity for a token pair A/B, you'll need to deposit a certain amount of token A and an equivalent value of token B.
Earn Fees: As a liquidity provider, you earn fees from traders who swap tokens within the price range you've allocated your liquidity to. The fees are distributed based on how much active liquidity do you have in the ranges where prices moves. HorizonDEX calculates and distributes fees automatically, ensuring fairness and transparency. This means that you may not earn any fees if you deploy your liquidity out of the range where price action happens.
Manage Liquidity: HorizonDEX allows liquidity providers to manage their liquidity positions. You have the option to add more liquidity to an existing pool or withdraw your liquidity entirely. Adding more liquidity helps to increase your share of the pool and potential earnings, while withdrawing liquidity allows you to reclaim your tokens.
Impermanent Loss: It's important to note that providing liquidity comes with the risk of impermanent loss. This occurs when the price ratio between the tokens in the pool changes compared to the initial deposit. HorizonDEX provides tools and analytics to help you monitor and understand the potential impact of impermanent loss.
Monitor and Optimize: As a liquidity provider, it's crucial to monitor the performance of your liquidity position. HorizonDEX provides real-time data, charts, and analytics to help you track your earnings, liquidity utilization, and overall performance. You can use this information to make informed decisions and optimize your liquidity provision strategy.
By providing liquidity in HorizonDEX, you become an integral part of the platform's efficiency and functionality. You contribute to concentrated liquidity, creating a more robust trading environment for users while earning fees for your participation.
