Advancing capital efficiency and ecosystem-wide liquidity
Raydium is excited to announce its next step towards ecosystem-wide liquidity on Solana: Concentrated Liquidity Pools!
The Open Beta will last for approximately one week on beta.raydium.io. Rewards will begin after the Open beta concludes.
Official Link: https://beta.raydium.io/
Five Concentrated Liquidity Market Maker (CLMM) pools are currently open to beta testers: RAY-USDC, SOL-USDC, mSOL-USDC, mSOL-SOL, and USDC-USDT. During the beta testing period, users can add and remove liquidity in a CLMM pool to earn trading fees. Swap routing on the beta site will include CLMM pools, always calculating the best route for your trades.
What to know about Concentrated Liquidity on Raydium:
Raydium initially launched its AMM as an innovation in capital efficiency among standard constant product (k = x*y) AMM pools, with idle liquidity used to market make on the Serum Central Limit Order Book.
Raydium is now launching Concentrated Liquidity pools! The CLMM allows LPs to provide liquidity within a specific price range, increasing the proportion of fees earned on actively traded liquidity. For traders, CLMMs improve liquidity depth around the current price which translates to better prices and lower price impact on swaps.
Concentrated pools allow providers to choose a custom range, which offers granularity for LPs to provide liquidity within any desired price range. Deposits in CLMM pools earn yield from fees and rewards when the pool trades within the price range determined by the user. While this allows LPs to leverage capital more efficiently, the trade-off is an increased risk of impermanent loss.
If you’ve ever provided liquidity on Raydium, you probably know that the ratio of tokens in a pool changes along with the price. In a standard AMM pool, if the price of a base token rises it means that users are trading the quote token for the base token. As such, the pool and LPs now have more of the quote token and less of the base token. CLMMs work in the same manner, however this is accelerated within the selected price range. For example, if the price trades below the position’s min price, the position will then be comprised of 100% base token. If price trades above the max price, the position will effectively sell the base token and then be 100% comprised of the quote token.
The design for CLMMs means capital can be more efficiently allocated towards market making within a price range. However, users should be aware that actively monitoring positions and market fluctuations is critical to mitigating the potential for increased impermanent loss.
Why don’t Concentrated Liquidity pools display an APR?
So CLMMs allow liquidity to be concentrated and earn a higher share of fees, but can APR be calculated for a CLMM pool or position? Well, that depends. In a CLMM pool, when price trades within an individual tick, fees are distributed proportionally to the liquidity provided by in-range positions. An accurate APR can be found for an individual tick based on trading volume within a time period, however, extrapolating this to all of the ticks in the pool and among multiple LPs is extremely complex. Traditional constant product pool APR calculations can not be directly applied to CLMM pools. Depending on the method of calculation, projected returns for CLMMs should be considered as an estimate at best.
For these reasons, Raydium is not currently displaying APRs for CLMM pools but will continue to explore methods for indicating projected returns for CLMM positions.
What’s next for Raydium’s CLMM?
Token rewards will start on Concentrated Pools after the open beta concludes, at which additional pools will be created.
Raydium is committed to advancing ecosystem-wide liquidity on Solana, allowing any user, project, or community to bootstrap liquidity. Upon the completion of the open beta, Raydium will launch Ecosystem Concentrated Liquidity pools and farming rewards with customizable fee tiers.
Raydium is constantly working to improve. Join the Raydium Discord server for questions or support!
To learn more about Concentrated Pools on Raydium, check out this detailed guide!