Benefits of CLMM for Maximizing Your Yield with ReHold

Decentralized finance (DeFi) in the past few years has significantly influenced the blockchain industry as it aims to disrupt the traditional financial system by creating new opportunities for investors and traders.

Among these innovative ideas in recent times are the creation of automated market makers (AMM) and concentrated liquidity pools or concentrated liquidity market makers (CLMM) aimed to increase the efficiency of liquidity pools of the automated market maker.

A concentrated liquidity market maker (CLMM) is a liquidity pool that allows liquidity providers to focus their liquidity around a specified price range leading up to increased capital efficiency and better utility, with a potential of high yield returns for investors and traders.

As the DeFi space continues in its growth, this will exponentially affect the understanding of concentrated liquidity market makers and its liquidity pools as investors and traders would explore the endless benefits of this trading strategy and better grow their portfolios.

In this article, we will focus on CLMM for yield generation, concentrated liquidity market makers explained, how to earn more with CLMM, concentrated liquidity pools for yield, Advantages of CLMM over AMM, Impermanent loss protection with CLMM, higher capital efficiency with CLMM, managing risks with CLMM in DeFi, managing risks with CLMM in DeFi, and why ReHold remains your best protocol for maximizing yield.

What Is Automated Market Makers (AMM)

Automated market maker (AMM) is a type of decentralized exchange (DEX) built with the help of smart contract algorithms to enable traders to buy and sell different crypto tokens without trading these crypto tokens directly with individuals as with the regular traditional order book.

Market makers are the liquidity providers on different DEX, enabling crypto assets to be traded, thereby avoiding a low volume of activities. Market makers accomplish this by using their accounts to purchase and sell assets to profit, frequently from the spread, which is the difference between the highest buy offer and lowest sale offer. Their trading generates liquidity, which lessens the effect of larger trades on prices.

A key component of every AMMs is liquidity pools and liquidity providers. Liquidity pools are collections of crypto assets AMM uses to facilitate different buying and selling of crypto tokens. The liquidity providers (LPs) are users who deposit assets to pools to enable trading activities.

AMMs require liquidity to operate correctly. When traders purchase and sell assets on the DeFi AMM, an AMM's lack of adequate liquidity can significantly impact pricing, resulting in capital inefficiencies and temporary or impermanent loss. AMMs compensate liquidity providers with a portion of the fees collected on the AMM, often given as LP tokens, to encourage them to deposit their crypto assets to the protocol. Yield farming is the activity of putting assets to receive incentives.

Due to their effectiveness, accessibility, and transparency, AMMs have gained popularity as a means of trading assets on DEX platforms but have fallen short in contrast with concentrated liquidity market makers (CLMM) in terms of liquidity providers managing their capital more effectively, and still earn high APR despite impermanent loss.

What Is CLMM - Concentrated Liquidity Market Makers Explained

Concentrated liquidity market maker (CLMM) is a new liquidity pool that ensures liquidity is concentrated within a specified price range, resulting in more capital efficiency with huge potential yield returns but requires a proper strategy to avoid impermanent losses associated with trading AMM or CLMM.

Uniswap V3 boosts capital efficiency and allows earning up to 300%+ APR thanks to concentrated liquidity. Source: uniswap.org

CLMM, in recent times, has continued to gain attention with its innovative ideas as it is a new model of AMM. Many DEX, such as the Unisawp V3, have adopted a concentrated liquidity pool as it focuses on increasing the effectiveness of price-adjustment processes, reducing slippage, and enabling liquidity providers to earn more as they could charge higher fees.

Traditional AMM liquidity pools have liquidity distributed across the entire price range enabling trading within the smallest interval to infinite. In most cases, this type of liquidity pool has led to inefficient use of capital as liquidity providers must distribute capital across the entire price range. This could lead to few opportunities to trade and higher slippages due to the volatile price changes in the market.

Concentrated liquidity pools, on the other hand, allow liquidity providers to focus their funds on narrower price bands. As a result, individualized pricing curves, improved capital efficiency, and more liquidity for traders are made possible.

In summary, some of the added advantages of the use of concentrated liquidity pools as compared to the traditional automated market makers are as follows:

• Liquidity providers can assign assets to certain price points with concentrated liquidity, allowing for tighter spreads and deeper liquidity
• Liquidity Providers can combine several concentrated liquidity positions to create custom pricing curves that meet their preferences
• Liquidity providers can receive trading commissions that are based on the liquidity offered at specific price ranges rather than the liquidity of the entire pool with little capital

Concentrated liquidity pools are an important development in the DeFi market because they allow LPs to maximize capital efficiency while giving traders greater liquidity and better pricing curves. Concentrated liquidity pools have various benefits that make them an appealing option for liquidity providers trying to maximize their revenues, even though standard liquidity pools may still have their purposes.

The Benefits of CLMMs for Liquidity Providers

Concentrated liquidity market markers enable users or liquidity providers to focus their capital within custom price ranges, providing more liquidity within these desired prices, thereby enabling LPs to build an individualized price curve based on their preferences.

Source: https://support.traderjoexyz.com/en/articles/6707938-liquidity-strategies

Liquidity providers can explore the possibilities of combining concentrated pool positions into a single pool to help users or traders buy and sell within this individual liquidity curve at no extra cost of gas fees. Gas fees collected are spread among the combined liquidity pools.

The concentrated liquidity pools provide more opportunities for yield returns for LPs than the AMMs system. Let us discuss a few of the ways this is possible:

Capital Efficiency

Concentrated liquidity market markers enable liquidity providers to offer the same liquidity depth within specified price ranges with a reduced capital at risk. The capital left can be used to invest in other crypto assets in the DeFi space or increased exposure within the same price range to earn higher returns from trading fees.

Active Liquidity

In the course of price fluctuations and market prices moves outside an LPs specified price range, the LPs liquidity is removed from the pool, and the LPs does not earn fees until prices return to the price range set by the LPs or the liquidity provider could continuously update their price range to earn from fees and manage the risks of impermanent loss.

Flexible Fees

CLMM is known for its flexibility in fees for liquidity providers with different fee tiers compared to the traditional automated market makers that usually charge a flat fee for all liquidity providers.

The introduction of concentrated liquidity across a preferred price range is a game changer for many LPs as this will optimize their potential yield returns such that LPs need to be actively involved with the market to enable high returns of yield as they adjust their price ranges for their liquidity pools in a more volatile market to earn fees. This strategy makes providing liquidity more costly but with less capital, as gas fees are associated with adjusting different price ranges.

Liquidity providers look for opportunities to earn a high-yield return and simultaneously try to maximize such profit returns while minimizing the risks of providing liquidity to different pools.

The CLMM system makes this possible for LPs as assets can be diversified to reduce risk exposure, or capital can be deployed to different price ranges while ensuring constant earnings from the fees in that liquidity pool.

With the opportunities that come with CLMM, ReHold App leverages concentrated liquidity pools (Uniswap V3, QuickSwap, PancakeSwap, etc), which utilize the endless benefits that liquidity providers gain from a concentrated liquidity pool. Let us focus on how ReHold App continues to help users to earn more from the CLMM system of providing liquidity.

ReHold And How To Earn More From CLMMs 

The ReHold protocol is an algorithmic app built with smart contracts over the Uniswap V3 leveraging on concentrated liquidity pools (Uniswap V3, QuickSwap, PancakeSwap, etc) to enable traders to create short dual investment trades with high APR of up to 220% within a short period (12HRS OR 24HRS).

With DEXs adopting the concentrated liquidity pools, the ReHold protocol can help traders and investors earn high yields through yield farming, providing liquidity to different pools and earning rewards from fees. Users can stake on different dual investments as the ReHold protocol aggregates the best prices from different pools.

ReHold protocol is one of a kind in the cryptocurrency space because of the following as compared to other high-yield generating platforms:

• ReHold protocol defines the blockchain network with high yield potential and is supported by CLMM DEXs (Uniswap V3, QuickSwap, PancakeSwap, etc), such as Ethereum, Arbitrum, Polygon, Binance Smart Chain (BSC), Fantom or Optimism, as dual investments are shared among the best liquidity pool
• ReHold protocol attempts to employ various stablecoins (USDT, USDC, DAI, BUSD) to offer the best liquidity if chosen Liquidity Pools (LPs) (Uniswap V3, QuickSwap, PancakeSwap, etc) don't have sufficient volumes or the predicted fee profits are low. The quotation ticker of Dual Investment is a stablecoin
• ReHold protocol employs different strategies to mitigate risks of price differences between stablecoins, imbalances in CLMMs, and mechanisms for managing staking plans in different market conditions to ensure high APR returns
• ReHold protocol sets its platform far apart as a result of its innovative ideas; a team made up of competent developers, robust design to help traders earn more, and audited by Peckshield inc, a top auditing company in the crypto space
• ReHold’s teams have built strong partnerships with Polygon, Chainstack, Unstoppable domains, Avvy domain, Fantom foundation, and others to provide top-quality services to its users

The Implications of Impermanent Loss and Concentrated Liquidity

Impermanent loss happens when cryptocurrency tokens change after being deposited in the liquidity pool due to market volatility. The larger the price change, the larger the impermanent loss, and as a result, AMMs adopted token pair trading wrapped with stablecoins to limit the impermanent loss.

Liquidity providers in the cause of impermanent loss are affected by market volatility when they withdraw their funds from the AMMs platform. Concentrated liquidity has been introduced to handle this growing problem for liquidity providers as they need to be active during price changes to earn more from price changes.

With impermanent losses looking like a big challenge for many DeFi protocols, how then does the ReHold protocol maintain profitability and proffer a solution to impermanent losses?

1. ReHold protocol algorithm leverages on different CLMM to provide liquidity and get much-needed trading fees to pay users based on high demands in pools with better commissions
2. ReHold protocol’s algorithm has the capacity to provide deep liquidity and generate high yields from different DEXs such as: Uniswap, QuickSwap, PancakeSwap, and TraderJOE
3. Impermanent loss is not applicable to ReHold dual investment strategy as it allows its users to still earn a high APR yield of up to 220% at any market condition without worries of impermanent loss to assets.

ReHold protocol has ensured users earn high APR returns despite the market fluctuations as they have worked hard to devise a strategy for both beginner and pro traders. Here are strategies you can adopt as a beginner or pro trader to earn up to 220% APR.

Beginner:

• Create a Dual Investment with the stablecoins USDT, USDC, or BUSD as the entry ticker if you believe the price will increase
• Create a Dual Investment using BTC, ETH, BNB (and other cryptos) as an entry ticker if you anticipate a decline in price
• Your entry ticker doesn't matter if the market is in a range or low volatility mode; you will still get a guaranteed profit on whichever ticker you choose

Pro:

• Depending on your preference, you can create a Dual Investment with stablecoins if you want to buy cryptocurrency at a discount or increase your stablecoin holdings at a profit
• Create a Dual Investment with cryptocurrency if you want to sell it for more money or get more crypto assets

Conclusion

Concentrated liquidity pools remain a game changer for liquidity providers in the DeFi space as it offers more advantages such as efficiency in capital management, the flexibility of fees, and allowing liquidity providers to concentrate their capital within price ranges while remaining active to ensure maximum earning from the pools and management of risk accordingly.

ReHold protocol has built its platform leveraging concentrated liquidity pools (Uniswap V3, QuickSwap, PancakeSwap, etc) to ensure its users continue to gain high APR up to 220% in every market condition and protect them from impermanent loss associated with DeFi trading, making this platform distinct from other DeFi DEX.

ReHold Protocol offers you the best DeFi experience ensuring both beginner and pro traders enjoy the benefit of concentrated liquidity. Visit the official ReHold Protocol website; mobile phone users can still use the ReHold App with their trust wallet and Metamask wallet installed, or read the Whitepaper to learn more.