Liquidity holds paramount importance for the success of any blockchain-based endeavor. It embodies the seamless facilitation of asset transactions, playing a critical role in the efficient operation of decentralized exchanges. Insufficient liquidity poses several challenges, including wide bid-ask spreads, slippage, and a subsequent decline in trading volume.
However, a significant obstacle arises from the fact that protocols lack the autonomy to select their own liquidity strategy. Instead, they must rely on liquidity management platforms provided by third parties, hindering their growth and restricting their true potential. Furthermore, current platforms fail to cater to the diverse risk appetites of different liquidity providers, necessitating the need for tailored strategies.
In this article, we delve into the revolutionary concentrated liquidity management platform offered by Steer protocol. This open and powerful solution eliminates these existing predicaments, empowering blockchain projects to unlock their full capabilities.
How Protocols Manage Their Liquidity
In traditional finance, centralized exchanges have control over their liquidity. They can choose to provide liquidity themselves to ensure that there is always a ready supply of buyers and sellers. However, in the decentralized world of Web3, liquidity is managed differently. Decentralized exchanges rely on liquidity providers to supply the liquidity needed for trading to occur.
How CLMs Do Not Give Protocols Any Option to Manage Their Liquidity
The introduction of Concentrated Liquidity Management (CLM) on decentralized exchanges was a major step forward in liquidity management. CLMs allow liquidity providers to concentrate their liquidity around specific price ranges, providing more efficient price discovery and better capital efficiency. However, this improvement came with a downside; protocols using CLMs are unable to control their liquidity in the way that centralized exchanges can. With centralised exchanges offering preferred pricing, a lower transaction fee compared to DEX and the ease of use for trading activities,
The Importance of Control in Liquidity Management
The inability to control liquidity can be a major challenge for protocols. The market is constantly changing, and liquidity providers may choose to remove their liquidity at any time, leaving the protocol exposed to market volatility. Additionally, without control over their liquidity, protocols may struggle to optimize for fees, capital efficiency, or other factors that are important for their long-term sustainability.
How is it beneficial for the protocol?
To make the liquidity ownership beneficial for the protocol, it is essential that they have the tools to meet their goals in an efficient way. This means that the protocol should be able to actively manage its liquidity to maximize returns for liquidity providers while minimizing the risk of impermanent loss. With control over liquidity, the protocol can adjust capital allocations based on changing market conditions, implement new trading strategies, and optimize liquidity provision to reduce the impact of impermanent loss. By doing so, the protocol can attract more liquidity providers and generate higher returns, leading to a more sustainable and thriving ecosystem.
An Open Platform for Liquidity Management
Protocols should look for platforms which do no take the ownership of the assets from the stakeholders, giving them full control over their assets, allowing liquidity providers to retain full ownership of their liquidity. This means that providers can choose to adjust their positions, manage their risks, and optimize for fees, all while maintaining complete control over their assets in a decentralized environment.
Increased returns with Steer Protocol
The ideal platform should not only be open, but have an edge to their technology, something that can offer the potential for increased market returns for liquidity providers. By using concentrated liquidity engines, providers should be able to manage multiple positions for a given pool and place liquidity on any capital allocation curve on a CLAMM. With Steer Protocol, a single strategy can manage dozens of positions on a pool at the same time. This can lead to higher returns for liquidity providers and the ability to build more complex algorithms that reduce the risks of IL/RL during active management.
Steer Protocol’s powerful concentrated liquidity management solution is different due to the ability to manage a multi-position strategy. This allows to recreate CEX bid/ask liquidity depth on a DEX in a single transaction as well as other styles of liquidity provisioning.
Building your own or choosing what’s best:
In addition to having control over their liquidity, protocols can also benefit from the ability to create their own custom applications or choose from a selection of pre-built apps. This allows protocols to tailor their liquidity management strategies to their specific needs and preferences, without requiring extensive technical expertise or development resources. With the ability to create or choose from a range of apps, protocols can improve their operational efficiency, automate repetitive tasks, and enhance their overall performance. Furthermore, this approach can foster innovation and collaboration within the ecosystem, as developers can contribute new and creative solutions to the platform, increasing its utility and value for all stakeholders.
In conclusion, liquidity management is critical for the success of any blockchain-based project and owning that liquidity is the only way ahead. Steer Protocol provides a powerful toolset for building and managing decentralized applications and strategies, giving developers the control and flexibility they need to optimize for fees, capital efficiency, and other important factors. With its open platform, increased APY potential, and off-chain computing capabilities, it’s an efficient, effective and truly essential platform for protocols to not just manage their liquidity, but also to own it.