Ariah Klages-Mundt
@aklamun
How are @gyroscope's new Dynamic Pools doing? Here's ETH/USDC on Base measured by market making PnL (TVL-adjusted markouts). Noticeably the best performance for this pair at the pool level. And it serves passive LPs. Let's walk through what this means 👇 **Why markouts?** Markouts compare the execution prices LPs receive in a liquidity pool against the ‘true’ prices on CEXs. - Positive markouts means LPs are making a trading profit. - Negative markouts means LPs are leaking value to arbitrageurs.
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Ariah Klages-Mundt
@aklamun
**Other components to LP profitability** LPs can also earn a return from 'volatility harvesting' if prices mean revert / wiggle around for a period of time. You can think of this in a simple way as effectively buying low and selling high over time (if the pool can achieve this) *while* prices wiggle back and forth. If a pool captures volatility harvesting, it can add profitability on top of markouts. - A pool with positive markouts and volatility harvesting will do even better. - If a pool has large negative markouts, it will be very hard to overcome this even with volatility harvesting.
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Ariah Klages-Mundt
@aklamun
The only pools today that really 'guarantee' volatility harvesting are pools that preserve the 'constant function' property of static AMMs. And then only while prices wiggle back and forth. Pools in which LPs constantly shift positions (e.g., most concentrated liquidity) give up this property and lock in IL at each shift. In which case, LPs must shift liquidity in sophisticated ways if they want to achieve volatility harvesting or conceivably lose money on this component too. **Dynamic E-CLPs** Gyroscope's Dynamic Pools are designed to capture volatility harvesting by preserving the 'constant function' property in most settings (liquidity updates are designed to be rare). They're designed to move with the market but settle into regions in which they have a shot at volatility harvesting. Which means that Gyro LPs benefit from good positioning both on the empirical markouts performance above and volatility harvesting.
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