Concentrated Liquidity

A Concentrated Liquidity strategy, previously referred to as 'Overlapping Liquidity' is a concentrated position where you buy and sell in a custom price range, used to create a bid-ask spread that moves as the market does.

Concentrated Liquidity

Concentrated Liquidity strategies utilize the powerful Carbon DeFi engine and allow users to create a concentrated product sum liquidity position.

This results in a strategy that mimics AMM trading solutions where there is always buy and sell prices that move on the same bonding curve together in a symmetrical way.

Users who choose to utilize this ability can control the fee tier, which provides more control over the spread applied between the offered buy and sell prices.

Choosing Price Range

Prices can be set by dragging the chart indicators in either direction or by inputting the exact value in the relevant input field below the chart area.

The strategy can be set at price range above, below, or around current market price.

  • "Above market price" will set the strategy to initiate with Sell High budget and be ready to sell the available budget as soon as market price goes up into the range.

  • "Below market price" will set the strategy to initiate with Buy Low budget and be ready to buy using the available budget as soon as market price goes down into the range.

  • "Around market price" will set the strategy to initiate with both Buy Low and Sell High budgets ready to be utilized as soon as market price moves in either direction.

When setting prices, the system shows how close the minimum and maximum prices are to the current market price. It does this by indicating the percentage change needed to align the current price with the set price limits, aiding in decision-making.

Indicate Fee Tier, previously referred to as 'Spread'

Fee tier value will define the gap (or space) between the prices of the Buy and Sell orders. This in fact serves as a fee that is defined by the strategy owner.

Calculating the Spread into price units:
Spread: 1%
Min Buy Price: 1500
Max Sell Price: 2000
This will result in 2 overlapping orders in the strategy
- SellHigh.MinPrice = 1500*(101%) = 1515
- SellHigh.MaxPrice = 2000
- BuyLow.MinPrice = 1500
- BuyLow.MaxPrice = 2000/(101%) = 1980.1980

Concentrated Budget Dynamics

The special correlating dynamics of the concentrated liquidity strategy forces the budgets to be adjusted in relation to one another. Because it is designed to maintain an identical fee, or spread, across all price points and move together on a single bonding curve, when indicating sell budget, the buy budget must be calculated using the strategy details.

However, if the indicated strategy price range is set outside (above or below) current market price, the strategy would only require 1 budget to be deposited for two reasons:

  • Prevent from having an immediate arb opportunity that can take the available budget at a discount

  • Maintain the strategy dynamics where the buy and sell orders correlate and when one side is taken, the other gets filled

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