Concentrated Liquidity Manager - #CLM - a quick review of live defi protocols
Protocols in review
Further down the page I will give an overview of the concentrated liquidity manger concept, and detailed specifics of each protocol but first a quick overview of the protocols in question.
There are 4 main players in the #clm space on EVM chains (mostly just on ethereum at this point), which i will rate by marketcap:
$ice - https://popsicle.finance/ - https://www.coingecko.com/en/coins/popsicle-finance $visr - https://www.visor.finance/ - https://www.coingecko.com/en/coins/visor $pilot - https://unipilot.io/ - https://www.coingecko.com/en/coins/unipilot $lix - https://lixir.finance/ - https://www.coingecko.com/en/coins/lixir-finance
This is a rapidly growing space, and this information could look very different in a month or two so be sure to follow the links for more up to date information. It's possible i've missed a protocol or two that has a working product, but these are the ones I know about. Feel free to mention any others in the comments.
Here is a comparison of basic metrics (as of writing):
(Live can be seen here: https://www.coingecko.com/en/coins/compare?coin_ids=lixir-protocol,ice-token,visor,unipilot)
One thing to note is the marketcap of all of these have come way down from their ATH but for most this was preceded by an intense and short increase in price. Part of this is the market at time of writing, but these projects have all been hit harder than the average DEFI project. My take on this is major hype on the subject of CLM as each of these projects raced to be first to market. A sell the news event followed, with the intersect of the reality of the tokenomics for each project (the early fees at launch TVL they were offering offered as rewards to token holders couldn't maintain the price). So from here it is a question of who will perform best for LPs? Rewards for token holders will come as a consequence of the most TVL.
Each of these projects are very different in the sizes of development teams and a wide range in ammounts ofraised funds. But who will build the most profitable and sustainable protocol?
Visor Finance
TVL Chart ↧
Unipilot
Popsicle Finance
TVL Chart ↧
Lixir Finance
TVL Chart ↧
Fees and Farming Rewards
Please understand the distinction between Fees and Farming Rewards. Fees are taken from trades gained from providing liquidity to Uniswap v3 style pools. Farming Rewards are additional incentives provided by the protocol. Fees are dictated by transaction volume, and the efficiency of the strategy used by the pool operators (each individual protocol). Farming Rewards are usually paid in the native token of the protocol, to some extent may come from bootstrapping funds as part of the fund-raise but is also determined by each protocols style of tokenomics.
Here is a quick glance a comparison of some pools and fees/rewards for each protocol (not all pools are shown but tried to find the same pairs across protocols).
LIXIR FINANCE
POPSICLE FINANCE
VISOR FINANCE
UNIPILOT
Concentrated Liquidity Managers
The Problem
Uniswap introduced it's v3 AMM in may 2021 with the primary feature upgrade allowing liquidity to be concentrated into specific ranges rather than spread out across the an infinite curve. The mechanics of this allows for a much better capital efficiency meaning less slippage for traders, and more fees for LPs.
https://uniswap.org/blog/uniswap-v3
Sounds like win/win for everyone, but there is one problem. A recent study shows that 50% of Uniswapv3 LPs are losing money:
There is much more to this paper if you are curious.
https://arxiv.org/ftp/arxiv/papers/2111/2111.09192.pdf
The hitch is that particularly while using the #ethereum protocol, fees for every transaction are quite expensive. To actively keep your v3 in range requires regularly making transactions. The smaller the LP, the more of their profits are eaten up by the costs of re-balancing their position. On top of this there is the time cost of having to actively engage in the markets, calculate the best ranges and implementing them on a regular basis.
The Solution
Concentrated Liquidity managers aim to bring the ease of traditional AMMs while enhancing the profit of univ3 pools. This is done through crowd sourcing liquidity, by sharing the costs of transaction fees for rebalancing and sharing strategies for rebalancing by the protocol.
In these two points each of the projects we are looking at have different approaches to these solutions, each with their own pros and cons. The primary differences being LP staking token type (NFT vs erc20), how the protocol automates rebalancing, and finally the tokenomics of participating as an LP (fee sharing, treasury, token launch style).
NFT or ERC20?
Visor and Unipilot use NFTs as a part of managing user funds. Some of the pros of such a model makes it easy to allow for single sided staking. The cons are that LP fees cannot be automatically reintegrated into a users position as inherited from the univ3 model. Fees must be claimed and compounded manually costing expensive transaction fees.
Lixir and Popsicle finance take a more traditional ERC20 approach to their LP tokens. The upside being LP fees can be automatically compounded costing the LP 0 additional fees. This also allows LP tokens to be used as a defi lego, potential utility down the road. The drawback is that these LP tokens must be staked in vaults as an extra step in order to get the protocol farming rewards (and transaction fees that goes with staking and claiming) and single sided liquidity becomes trade of tokens on the back end. Another funky thing here is that providing liquidity won't be 50/50 depending on when the last rebalance was. If the pool is due for a rebalance you may have to trade tokens first to get the right ratio.
These projects are all complicated with each their own intricacies. I'm not an expert on each one, I suggest looking over each protocols documentation for the details. As an overview the following are notes on the outstanding features as I see them.
LIXIR FINANCE - https://lixir-finance.gitbook.io/lixir-doc/
Lixir has chosen the proven CRV model for it's staking model. This means that a larger portion of rewards are given to those who lock tokens for periods of time. A portion of fees from each LP pool are also shared with wallets with locked tokens (this fee aspect is the next feature to be released, it is not live yet). The developers are focused on building the most capital efficient automated rebalancing strategies, fine tuning each of their pools. 20-30% of fees are taken for both covering rebalancing costs, and distributing income to locked $lix stakers. In this sense $lix is a club token which rewards those most who lock up the token. Tokenomics work like this: More TVL brings more Fees, fees goes to stakers, the higher the TVL the higher the APR of $lix, leading to more demand for the token and less supply as it gets locked up, higher token price means better rewards, and better rewards attract more TVL... The pros of $lix that I see is they seem to have the best tokenomics, and some of the highest base APR from fees, Their marketcap has the most room to grow. The cons I see is they seem to have the smallest team and so far the smallest community.
Number of Pools: 5 Fee range for LP APR: 59%-250% Additional Farming rewards: 17%-2215% Staking $lix APR: *N/A (Lix has been collecting backlog fees to distribute to current $vLix once staking contracts are live)
How to stake in a pool: https://lixir-finance.gitbook.io/lixir-doc/resources/guides
POPSICLE FINANCE - https://docs.popsicle.finance/
This is the giant of the CLM right now, backed by the hype group who brought you abracadabra.money and other such projects. There is a huge following for this project with lots of industry funds. Popsicle Finance aims to be a cross DEX and cross chain CLM. So not only do they aim to Automate liquidity inside of a univ3 position, they aim to automate the location of your funds to find the highest yield between all DEX on all the chains they build out onto. For now the pools function largely in the same way Lixir does (although farming and staking is different). At the current time the TVL of this project is between 5x and 30x the TVL of the other 3 but so is the marketcap. With a great start on TVL and a big community this promises to an important defi protocol for the foreseeable future. One downside to note is that #ice already encountered one hack which set development back several months and have just recently relaunched after recovering from these issues.
Number of Pools: 22 Fee range for LP APR: 45%-950% Additional Farming rewards: 100% on 2 pools Staking $ice APR 11.24% How to stake in a pool: https://docs.popsicle.finance/our-products/sorbetto
UNIPILOT - https://unipilot.gitbook.io/unipilot/
One unique aspect of unipilot is the ability to make your own pool that others can join in on. Rebalancing pools is a bit rudimentary. As a pool gets close to the edge of it's range, any user can make a call to the smart contract through a transaction to initiate the rebalance. The $pilot token is backed by a "growth fund" which is built up through a few different fee scalping mechanics, some of which users have choice over. The pro for Pilot is it seems to aim for a wide range of features outside of what other CLM are doing, giving the protocol a lot of opportunity to succeed. They also provide gas incentives, and have an easy migrate feature to bring over existing LP positions. Cons it would seem that the tokenomics model with their "index fund" backing $pilot will take a long time to build. I also have trouble seeing how their user operated manual strategy for rebalancing will be competitive with in terms of APR compared to other CLM, but this feature combined with user created pools allows them to have a much larger collection of pools in the long run.
Number of Pools: 19 Fee range for LP APR: 0.5%-750% Additional Farming rewards: 10%-200% $pilot APR: *N/A ($pilot is a store of value backed by "unipilot index fund", users can redeem $pilot for underlying value)
Visor - https://docs.visor.finance/
First to market, visor is the pioneer of this space. 10% of fees from all vaults are shared with stakers of $visr, when staked becomes an auto-compounding asset $vVisr so rewards do not need to be claimed. While visor has the most time in the space it has also suffered from exploits which has damaged some perception of the project. The pro for visor it's strategies are actively managed so as techniques evolve so will their APR.
Number of Pools: 30 Fee range for LP APR: 4%-400% Additional Farming rewards: None (that i could find) $vVisr APY: 8.57% How to stake in a pool: https://docs.visor.finance/learn/guides/stake-assets
Conclusions
There are two main ways that these protocols can be successful, first is to bring the most profit to LPs Second is to bring the most profit to token holders. It is still to early to know what protocol will be most successful in these ways. One protocol could end up being best for LP for certain pools or even across all pools (all of these protocols must find success here one way or another), but fail to have the best tokenomics for their governance token. So finding the best place to LP and the best CLM to invest in is not necessarily one in the same.
There are other very important aspects not covered in this article for example the issue of security. Adding another protocol between the user and the AMM adds a whole new layer of risk so these protocols must entice with high profits while proving their protocol is safe through time. Additionally protocols help reduce risk by partnering with insurance protocols (which most of these projects have).
I hope this information was helpful in guiding you on your LP and investment journey!
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