Defi Farm #31 - Dec 18th Weekly Update

Hi everyone,

Welcome to the 31st edition! As always - an insane week. Trump NFTs, exploits, and continued web3 adoption. Let's dive in 🤿 Over the past 7 days:SPY: -2.77%BTC: -2.4% ETH: -6.8% 

Major L1's:SOL: -8.8%AVAX: -11.9%Near: -20.3%Algo: -16.6%FTM: -14.3%Today I'll go over:- Using concentrated liquidity positions during a bear market- News from this past week- Defi farm of the week

A strategy for concentrated liquidity

I've talked at length (maybe too much) about what concentrated liquidity providing is in prior editions so I won't do it here again. TL;DR a concentrated liquidity position is one where the liquidity provider chooses a range of prices to provide liquidity at, outside that range, their liquidity is not used to facilitate trades and they don't earn any fees.

Concentrated LP positions can be great for yield generation in crab-market environments (when prices stay somewhat flat over long periods of time.)

However, I don't think that some people realize how they can also be used to act almost like a better limit order.

Example time.

Let's say you have some USDC and want to scale into buying ETH with that USDC.

The current price of ETH is $1,180.85. You decide that if ETH gets to $1,000 you want to start making small buys. At $800 ETH, you want to have your USDC fully deployed into ETH.

This is incredibly easy to set up thanks to the mechanisms of how concentrated LP positions function. Because this position is out of range (to the downside) you would provide 100% USDC into the pool.

If the ETH price drops below $1,000, your USDC will slowly start to be converted into ETH. If the price of ETH goes below $800, you could withdraw your liquidity from this pool and receive 100% ETH back.

You can also do the same thing to scale out of positions. Let's say you have ETH and you want to slowly sell to USDC starting at $1200 and be fully sold out at $1600. The setup would look something like this.

The HUGE advantage that comes with scaling into and out of positions with CL pools is that when your position is "in-range" you're also generating yield! The amount of yield you earn will be incredibly dependent on transaction volume going through the liquidity pool, how long your position stays in range, and how concentrated the range is.

To give you some ballpark numbers...

I used this method to scale out of GMX and earned an average of 120% APR for the 3 months that my position was "in range".I am also currently doing this to scale into ETH, BTC, and a few other smaller market cap coins and am earning averaged 30-80% APR depending on the pool while they're in range (which has been ~2 months so far.)

Just something to keep in mind as we close out 2022 and go into 2023. I think many people look at concentrated liquidity pools as dangerous because of the possibility for drastic impermanent loss, but if you go into these positions wanting to use IL, I really think that these are incredibly powerful tools.

Cool things that happened this past week

There's been A LOT, but here's just a small sampling.

• Pocket Universe put out a really great tweet about understanding different gassless signatures and which ones you should avoid. This should be required learning for anyone how is using metamask.

• Redphone, who I would categorize as a "crypto philosopher" released their 69 Theses for 2023. It's a really good read. I'd say that more than anyone I've encountered on the web, Redphone truly believes in, understands, and is able to eloquently communicate the importance of crypto adoption.

• Raydium (a Solana DEX) was exploited for ~$4.4million. You can read the details here.

• Amber Group announced a $300million Series C raise

• Aztec (privacy focused defi) raised $100 million Series B

• Trump Digital Trading Cards launched on Polygon 🙄 The mint price was $99 🙄🙄, the floor is now $500+ 🙄🙄🙄

Defi Farm of the Week

Not a typical farm recommendation this week. Instead of calling out a pool that's earning some decent yield, I'm just going to encourage everyone to listen to this podcast with Sam Kazemian from Frax.

I think that the Frax ecosystem is often misunderstood and this podcast episode does a really great job of explaining the Frax product suite in a way that most people can understand.

For me, it also expanded my understanding of what's possible for Frax and the size and importance the ecosystem can achieve (if successful).

That's all I have for this week! Stay safe out there and as always, stay yielding!