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Fluo's Liquidity Management
Liquidity solution for perpetual DEXs
Fluo is a liquidity management and bribing platform. Let's explain liquidity management.
Liquidity management is a type of market making strategy. It's doable on both spot and perpetual markets. Before explaining the different types of liquidity management, let's take a look at the current problems of liquidity provision.
Fluo vaults help overcome the downfalls that protocols and liquidity providers face when providing liquidity:
Inefficient: In constant-product AMM DEXs, liquidity is spread thinly and inefficiently across an infinite price range, resulting in lower swap fees rewards to LPs. They also lose out due to the lack of in-built auto-compounding features.Expensive: Token emissions are used to incentivize liquidity in a model that introduces inflation, which is expensive to the protocol.Complex: Next-generation concentrated liquidity AMMs improve upon inefficient liquidity's downfalls but add complexity, making it time consuming to constantly manage and optimize liquidity while tackling magnified impermanent loss.
Spot liquidity is providing asset-asset liquidity on a spot liquidity pool. It is something most of us in DeFi have done before on spot DEXs, and is also known as "LPing", or liquidity provisioning.
With Uniswap V3's business license having expired, more DEXs will launch concentrated pools. Concentrated pools is more tedious to manage compared to the usual constant liquidity pools as liquidity providers have to set price ranges for their liquidity.
The benefits of concentrated liquidity is that the more concentrated the price range is set, the higher the capital efficiency, allowing LPs to earn more trading fees, as long as price remains within the range.
Although the trading fees are amplified while price stays within the range, the impermanent loss is also amplified once price moves out of the range. Additionally, once prices is out of the range, the LP stops earning fees until they withdraw their liquidity, and deposit it into a new price range that supports the current price.
Active liquidity management for concentrated positions is akin to being a market maker on a DEX, however, if done manually, it can feel like a full-time job.
This process is even more intensive when done manually for CLOB DEXs, and would definitely require software to perform effective market making.
Thus, the need for liquidity managers (LMs) to manage concentrated liquidity will increase.
Perpetual liquidity management is similar to spot except that it only requires USDC, as it is used to set bids and asks on perpetual DEXs.
If you have heard of GMX's GLP, it is something similar and has proven to be quite a successful product with many different variants, such as Vela's VLP, or gTrade's gDAI.
Perpetual trading is currently the most popular form of trading on centralized exchanges (CEXs) with volume that is 3-10x higher than spot volume. However, on decentralized exchanges, perpetual trading volume is still lower than spot volume. Additionally, the total perpetual volume on DEXs is just 1.5% of CEXs.
As CEXs continue to face issues from regulatory scrutiny, poor management, asset custody risks, and so on, while DEXs continue to grow in features and UIUX, we believe that perpetual trading volume on DEXs will grow exponentially.
Currently, there are 3 types of perpetual DEXs:
- Concentrated Liquidity Automated Market Maker (CLMM)
- Central Limit Order Book (CLOB)
- Oracle-based (example GMX, GNS)
Fluo can work for all of them but is best suited for CLMM and CLOB DEXs.
Due to the above reasons, Fluo was created.
It is a liquidity manager that offers the public a non-custodial, automated, and active liquidity management services via easy-to-use vaults.
Providing automated liquidity on CLMMs and CLOBs requires sophisticated tools, which is unrealistic for a normal user. Without liquidity, spread and slippage is higher compared to CEXs.
Fluo closes this gap by providing a simple, flexible, and automated vault that enables anyone to provide liquidity and market make like professionals.
Fluo also pioneered a liquidity bonding mechanism that empowers perp dexs or other protocols to incentivize liquidity to be bonded, in order for liquidity to be more sticky.