DeFi

Honestly the biggest surprises to me in the crypto space is people not understanding defi and claiming some of these protocols are too complicated, especially when referring to systems like AMMs or CLAMMs.

Its not complicated at all when much of these systems can be seen as volatility swaps, where you trade large potential upside and downside for less upside and downside. The key point is you have safety somewhere between holding spot tokens, but you also are exposed to the markets more than holding stablecoins.

The reality is most people should probably exclusively only use CLAMMs since it gives you downside protection, and pays you fees to hold it.

Defi. Ethereum. Physics.

Data at @quotient.

Founder & Creative Director @ https://flowzed.com • AI researcher, blockchain architect & computational artist • MSc Nanotechnology @ Oxford

I like this perspective. It’s a lot more calculated than how I’ve interacted with CLMMs. I’ve been put off doing so further by not having a strategy to manage/contextualise the impermanence loss

The perspective: All finance contracts are options contracts.

A CLAMM position is like writing a put. You're earning yield which should be seen as a premium, and you're essentially writing a contract where if the ETH goes down in price, you are forced to buy ETH at that price. Because it's an option, it sits naturally in a volatility distribution between holding spot cash, and holding all ETH, which I think most traders should do.

When setting up a position, you need to ask yourself, "given the current market environment, what price of ETH would I be comfortable with backing up the truck and buying at?" This is your bottom of tick range. Also, "What price of ETH would make no sense to be at where I can sell it and feel comfortable it can come back down?" That's your top of tick range.

While you sit in the position, you're paid by the fees earned so it's far less volatile than sitting in spot ETH.

I feel like the downside trade-off is worse in CLMMs - let's say I provide liquidity to an ETH/USDC pool, if ETH value goes down below the bottom of my chosen tick range, all my liquidity is now in ETH and that ETH is worth less than when I provided my tokens -  whereas with standard AMM I'd still hold some portion in USDC until ETH value hit literal 0. 

What perspective am I missing?