A discussion of the various strategies used by Gamma.
Gamma's vaults can use a variety of management strategies. The choice of strategy depends on the asset classes, the fee tier, and many other variables.
Gamma continues to test and develop innovative strategies for managing concentrated liquidity.
From Uniswap Labs
Liquidity ranges are automatically rebalanced when certain rebalance triggers are hit. Liquidity ranges can be set for a pair, and rebalances are automatically triggered by the price moving a certain percentage one way or another.
The wide-range strategy caters to long-term liquidity providers and their risk preferences. It takes into account high volatility and rewards in the selection of ranges.
The narrow-range strategy caters to short-term liquidity providers and their risk preferences. The narrower ranges will earn more in fees and rewards but likely incur more losses in a high-volatility environment.
A stable-stable, stable-volatile, or volatile-volatile asset pair.
WBTC-WETH Pair 0.05% - Mainnet agEUR-WETH Pair 0.05% - Mainnet WETH-USDC Pair 0.05% - Optimism USDC-WETH Pair 0.05% - Polygon
Accrued fees will be compounded back into the position regularly on behalf of LPs compounding yield. Auto-rebalancing allows for a passive LP experience.
Wider ranges generally have less impermanent loss in a high-volatility environment. Over the long run, the savings in impermanent loss will likely outweigh the higher fees in a narrower range.
In a low volatility environment, narrower ranges generally earn more in fees and perform better due to earning at a higher fee multiplier without suffering much impermanent loss.
Upon each rebalance, price ranges are set at a fixed range of the current price, and asset allocations could vary from 50/50.
In a low volatility environment, wider ranges may earn less in fees and perform worse due to earning at a lower fee multiple.
In a high-volatility environment, narrower ranges incur more impermanent loss and divergence costs. Over the long run, the higher fees in a narrower range will likely not outweigh the impermanent loss.
Liquidity ranges are aimed to straddle one asset at various ranges depending on backtesting results. For more volatile stablecoin pairs, wider ranges will be used. For blue-chip stables, narrower ranges will be used.
A stable-stable asset pair
USDC-DAI 0.01% - Optimism sUSD-DAI 0.05% - Optimism USDC-FRAX 0.05% - Polygon
Accrued fees will be compounded back into the position regularly on behalf of LPs compounding yield.
During times of high volatility in the markets, asset allocation could vary significantly from 50/50.
Liquidity is provided directly around the net asset value of a provided asset.
A wrapped, staked ETH derivative asset will be provided only within a fixed range around its net asset value.
rETH-WETH 0.05% - Mainnet
As the net asset value hits certain price targets, the liquidity position will be automatically rebalanced.
During high market volatility, the actual market price can go out of range, and the position will not earn fees.