The Easy LP simple mode provides an intuitive way to provide liquidity and express your market views on Perp v2, making earning yield as a maker a breeze.
What is Easy LP?đ§âđ«
If youâve ever provided liquidity on Uniswap v3, then becoming a maker on Perp v2 is similar. You have to set a price range to concentrate your liquidity or you can opt to select to provide liquidity along the entire price curve. The yields are higher for liquidity providers (or LPs in the following) with more concentrated positions but the risk of going out of range is also greater.
The problem with LPâing is that setting the range can be difficult, especially in times of high volatility. ***How wide or narrow should the range be? At which price should the position be opened? How long will the price realistically stay within your range? ***
LPs only earn fees if the range is wide enough to capture the marketâs movements. If the price moves out of range, the position will stop earning fees and youâll face greater impermanent loss. Want to remove the guesswork? Then you can provide liquidity with our simple mode: Easy LP.
If you want to automate your own strategies, check out our tutorial guide and video walkthrough of running the Perp-maker bot!
One way to look at our Easy LP simple mode is that it lets you express bullish or bearish market views. But instead of taking a position as a taker, you can provide liquidity on a single side of the market as a maker to earn a nice yield if the market behaves the way you expect it to.
Choosing either bearish or bullish is the first but most important step, as this determines how your liquidity is allocated.
When opening a liquidity position, the USDC collateral in your account is converted to vTokens, which are then allocated in different proportions depending on how you set your price range. What Easy LP achieves is a convenient way for you to allocate liquidity according to your market view to earn trading fees while minimizing impermanent loss.
How to Use Easy LPâ”
Before we introduced Easy LP, makers had to set their price range themselves and figure out the best strategy to provide liquidity. But now itâs plain sailing for anyone who wants to earn a return from trading fees and liquidity mining rewards.
When navigating to the Pools page and looking at each market, the total APR is displayed which combines the expected yield from trading fees in USDC and liquidity mining rewards in PERP. The upper estimate reflects the return for highly concentrated liquidity positions with very narrow price ranges. Yields for supplying assets over the full price range are indicated by the lower estimate.
While you can provide liquidity across the entire price range (or any customized range you prefer) with the advanced mode, Easy LP concentrates your position according to your risk profile and can earn higher returns than the full range strategy.
Are you Bullish or Bearish?
The animation for each option shows how you expect the price to move after opening a liquidity position. Itâs important to note that you can still experience impermanent loss or risk liquidation if you use a large fraction of your buying power, or if the price behaves unexpectedly and goes way out of range.
When setting a range, select from three different options: narrow, medium or wide. Each option is a certain percentage difference from the current price, 20%, 40% and 60% respectively.
So if you want to earn higher yields but take on more risk, provide liquidity using the narrow option. If youâre more risk averse and prefer a low but stable yield from being a maker, then choose the wide option. The last step is to set the amount of liquidity you want to provide and then confirm the position with the âAdd Liquidityâ button.
Warning: using a large proportion of your buying power increases the risk of liquidation. As the price moves away from your entry point, youâll take on an impermanent position. If high leverage is used, then the impermanent positionâs PnL may quickly deplete your free collateral and possibly liquidate your position.
A Closer Look at Easy LPđ
Now you know how to use Easy LP to provide liquidity and earn a yield, letâs look at how it works under the hood for the bullish and bearish cases separately.
As explained earlier, USDC collateral is converted into vTokens when taking a position or providing liquidity. Depending on which mode you choose, your liquidity will either be placed:
-
to the upside (bearish) entirely in the base asset (e.g., vETH), or
-
to the downside (bullish) entirely into vUSD.
Bullish Modeđ
If youâre bullish on BTC, youâll be buying no matter what.
The Easy LPâs bullish mode achieves this by supplying USD liquidity below the market price to bid into any downward movements. As the price falls, a long position in BTC is accumulated by swapping vUSD into vBTC, and the further the price falls, the larger the position becomes.
As the price rises back towards your entry price, you are then scaling out of vBTC and back into vUSD, which reduces the loss from the impermanent position.
Bearish Modeđ»
If youâre bearish on BTC, youâll be selling no matter what.
The Easy LPâs bearish mode achieves this by supplying just the base token (e.g,. vBTC) as liquidity above the market price to sell into any upward movements. As the price rises, a short position in vBTC is established by reducing the allocation towards vUSD, and the further the price rises, the larger the short position will be.
Youâll be scaling out of the BTC short position and back into vUSD as the price falls back towards your entry price. As a result, the impermanent loss declines, eventually reaching zero when the price returns to your entry price.
With 17 markets to choose from, Perp v2 enables anyone to become a liquidity provider based on their sentiment with the Easy LP feature. If youâre on the right side of the market, it will be smooth sailing!
Donât forget to share those juicy yields with your friends or on social media.
Links
Translations of this article are available in Español, Hindi (à€čà€żà€à€Šà„), Swahili, and Thai (àčàžàžą), thanks to the help of our Perpvangelists!