In the coming days, Astroport will unleash passive concentrated liquidity (PCL) pools on the Cosmos.
05 Sep 2023, 15:17
In the coming days, Astroport will unleash passive concentrated liquidity (PCL) pools on the Cosmos. But what exactly is PCL and why does it matter?
Liquidity providers can generally be lumped into three buckets:
1️⃣ Passive LPs
2️⃣ Active LPs
3️⃣ Algorithmic LPs
👉 Passive LPs toss liquidity into pools and walk away.
👉 Active LPs constantly monitor the market. If they’re using Uniswap or Osmosis, that might mean adjusting the ranges on their liquidity as frequently as daily, hourly or even more for professional market makers.
👉 Algorithmic LPs let algorithms adjust their liquidity as needed.
When Astroport launches passive concentrated liquidity (PCL), LPs will get the best of all worlds. That's because PCL pools will use a repegging algorithm to automatically “concentrate” or “amplify” liquidity around the current market price.
Specifically, the algorithm looks at ongoing trades and rebalances liquidity & fees around the exponential moving average of recent trades.
In effect, the pools look at live market conditions and create new curves that amplify liquidity where it’s needed most (i.e. the current market price).
PCL pools have 3 core benefits:
1️⃣ Passive LPing (no manual rebalancing required!)
2️⃣ Improved capital efficiency (better trade rates than you can get on XYK pools)
3️⃣ Toxic flow mitigation (PCL pools automatically adjust trading fees higher during volatile periods to offset IL for LPs)
It’s the best of all worlds, and it’s arriving on Astroport imminently. Stay tuned.
The future awaits!
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Remember, Astroport, Injective, Neutron, Sei, and Terra are experimental technologies. This post is subject to and limited by the Astroport disclaimers, which you should review: