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Active Liquidity Management
ALM with Gamma
By using Gamma's active liquidity management tools, users can benefit from automatic rebalancing of their liquidity to keep it within range and auto-compounding of generated swap fees to maximize capital efficiency.
Once you deposit your liquidity, Gamma takes care of the rest. Managing your liquidity has never been easier!
Gamma is a non-custodial protocol that offers automated and active management of concentrated liquidity. Through various management functions, including rebalancing, position setting, and fee processing, Gamma allows for the active management of funds within liquidity pools without sacrificing asset custody. These features are made possible through ongoing research and implementation of key strategies driven by data science and financial modeling aimed at delivering optimal results to customers.
ALMs are designed to address several challenges that exist in CL AMMs:
CL AMMs provide greater capital efficiency than standard AMMs but are also more complex to manage. Users must understand different liquidity ranges, and associated risks, and deploy their capital with more steps. This complexity can be daunting for many users.
Higher Impermanent Loss
Another challenge with CL AMMs is the increased risk of impermanent loss due to the ability to concentrate liquidity. If the market price goes beyond the established price ranges, users face the maximum IL. Therefore, users must be mindful of their risk appetite and provide liquidity accordingly.
Active Position Management
To mitigate against impermanent loss, users must be active in managing their CL positions. This requires constant supervision to ensure that current prices do not go beyond the established ranges, or else they face the risk of maximum IL. This active management can be time-consuming and difficult for many users.
More work for Projects managing their own Liquidity
Additionally, projects looking to manage their own liquidity and engage in market-making activities will need to allocate more time and resources under a CL environment.
ALMs are focused on active management for CL AMMs to maximize fee generation, minimize impermanent loss, and automate the process of rebalancing users' positions. With ALMs like Gamma, users can outsource the active management of their liquidity in a trustless manner. This means that users can avoid the complexities of active management and benefit from a more streamlined and efficient process.
In CL, LP tokens are represented as an NFT, which hinders composability. However, with Gamma's ALM, LP positions will be manifested as ERC20 tokens, which are composable across DeFi. This means that LPs can deposit Gamma LP positions to Zyberswap's standard farms and benefit from the platform's other features.
Automatic Wide: less rewards from fees, however the Impermanent Loss will be smaller.
Automatic Narrow: more rewards from fees, however the Impermanent Loss can be higher.