Liquidity on Autopilot with Trader Joe Auto Pools
Providing liquidity can be a stressful effort, with the need to rebalance and actively manage positions. Well, not anymore!
Today’s newsletter comes back to one of our favorite protocols: TraderJoe!
In fact, I have already dedicated a thread and a previous article to introduce the innovative Liquidity Book (LB) AMM model introduced by Trader Joe.
If your memory is as bad as mine is, here’s a refresher:
To sum things up, Trader Joe introduced a unique AMM design, different than traditional AMMs such as Uniswap.
The LB design, in fact, combines elements of DeFi AMMs and traditional order books: its aim is to help liquidity providers (LP) to reduce slippage and eliminate impermanent loss — the main drawbacks of providing liquidity.
It improves:
1. Impermanent Loss;
2. Capital Inefficiency;
3. Low Composability.
How does the LB work?
Even though most of the inner workings have been covered in the aforementioned thread, Let’s mention a few things here.
LP on Trader Joe can select at what prices they want to provide liquidity;
Bids are aggregated in a sort of Order book, each in their own Bin;
In the LB, liquidity is aggregated vertically inside the different bins rather than horizontally;
Fees are then paid out to specific bins compared to what happens in traditional AMM, where anyone whose range is touched by the price gets a share;
Higher composability for LP: who are given fungible token receipts for depositing liquidity, that could be used in other DeFi Protocols;
The variable fee is used to compensate LPs for the impermanent loss.
In addition to this, Trader Joe design also offers unprecedented flexibility for LP, providing four different “liquidity shape pre-sets” to suit all different strategies.
Once they select their pre-set they will be able to work on different strategies based on their risk and return propensity.
Each strategy is in fact perfect for certain specific situations.
For instance, the Curved strategy:
Is Perfect in calm markets, as it is Capital efficient
Increases the risk of impermanent loss;
Requires re-balancing around the current price for maximum effectiveness.
Nonetheless, this stuff seems hard AF!
This is definitely a tool for advanced users, which have been able to leverage Trader Joe LB design to make bank, for instance, during the ARB protocol.
What about the average user though?
Since Trader Joe aims to be the #1 AMM in DeFi, they have been working hard to make sure that those strategies are within everyone’s reach, and not only for pro-users.
Auto-Pools
This brings us to the most awaited product development for Trader Joe: Auto Pools.
What are Auto Pools?
Auto-Pools are built to overcome the problem mentioned above: most of these LP strategies require in-depth knowledge and active management.
Auto-Pools, on the other hand, allows the automated management of LP positions.
Users can simply deposit Tokens into an Auto-Pool, that will execute and manage the strategy, without the need to actively do so.
This is probably one of the most far-reaching improvements of the protocol, which will change Trader Joe from the pros protocol to the people’s protocol!
In fact, while many have gazed and have been fascinated by Trader Joe LB's design, managing an LP is an effort that not everyone is open to, even due to lack of specific knowledge, due to the changing and complex market conditions, or to time constraints due to active management.
Auto-Pools are here to solve all of these issues and to allow anyone to become an LP.
Even while they relax.
The Auto-Pool development is expected to take place any time soon.
Read more on how you can make the most of it on Trader Joe’s new blog post:
I do believe this is going to be a major achievement for Trader Joe.
LPs are typically considered an advanced way to get yields, especially in a choppy market. Most retails end up getting burned, with a high impermanent loss and constant need to manage the position.
Things are about to change with Auto-Pools.
It will be interesting to see the impact of Auto-Pools on retail liquidity provision and also how Uniswap and others will respond to this.
BUT Francesco.. WEN Auto-Pools? 👀
Here's some alpha for you.
Can you guess?
