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Deploying, Managing and Rebalancing Liquidity
Deploying, Managing and Rebalancing Liquidity

Simple how to guide for managing liquidity

Trader Joe avatar
Written by Trader Joe
Updated over a week ago

Contents

  • How do I earn fees?

  • How do I rebalance my Liquidity?

  • Step by Step Guide to Deploying Liquidity

  • Overview of each step to deploying liquidity

  • Batch deployment feature (deploy any range you want)

  • Removing your liquidity

  • Link to documents explaining strategies


How do I earn fees and what is the active bin?

The active bin is the currently live 'market price' of the assets in a Liquidity Pool. Only the active bin consists of both tokens and only the active bin earns trading fees. Therefore when providing liquidity, it is important to always have Liquidity inside the active bin to ensure trading fees are being accrued. Once the price moves to a different bin, the previous active bin becomes inactive and stops acquiring fees.

Earning Fees

When you provide liquidity in Liquidity Book, you automatically earn fees whenever swaps are made. Your position accrues and compounds these fees instantly, eliminating the need for manual claims. This seamless process ensures your earnings grow effortlessly.


How do I rebalance?

To continue to receive trading fees, liquidity providers need to rebalance their liquidity if their liquidity moves out of the active range. This is done by removing tokens from inactive bins and depositing into the current active bins that represents the assets current market price. Liquidity Book makes this process easy, by giving you the option to either add to your existing position or to withdraw and redeploy some or all of your liquidity.

What are some considerations when re-balancing?

  • Costs: Rebalancing involves paying for gas and buying and selling assets, which can incur trading fees. It can be helpful to consider these costs when deciding how frequently to rebalance.

  • Market conditions: Rebalancing on Liquidity Book should take into account market conditions, as different market conditions may require different rebalancing strategies. For example, in a volatile market, an LP may need to rebalance more frequently.


Deploy Liquidity in just Five steps

Follow the five easy steps below to add Liquidity, or scroll down for a detailed guide.


Adding Liquidity: Step by Step Guide

  1. Select Liquidity Pool:

    1. On the Pools page, search for a Liquidity Pool you wish to supply liquidity for

  2. Deposit your Tokens:

    1. The panel on the right hand side of the Liquidity Pool page will provide you with the option to add any quantity of Tokens, the below example you can see the option to add AVAX and USDC.

  3. Select your Liquidity Shape:

    1. If you are unsure about the type of Shape, refer to the above guide to help you decide the type of shape that best fits your investment strategy.

  4. Supply your Liquidity:

    1. Now press the Supply button. Once you have deposited Liquidity, your details will be highlighted on the left side of the page. Your Liquidity Shape will appear in the graph and your balance will be highlighted.

Batch Liquidity Deployment

Deploy Liquidity over ANY range you desire, select your liquidity shape and enter the price range that you want to deploy Liquidity over. Next, select 'Add Liquidity' for each Batch transaction to deploy your Liquidity over the desired range. Using Batch Liquidity Deployment, you can deploy liquidity over a wide range, enabling a more passive approach to Liquidity Provisioning.


Removing Liquidity

There are Four options to remove Liquidity

  • Remove both Tokens from the Pool

  • Remove the first Token

  • Remove the second Token

  • Remove Tokens from specific bins

To remove liquidity, simply select 'Remove Liquidity' on the Pool page that you have supplied into. You will then have three options you select, simply select one of these and then define how much liquidity you would like to remove (or select Remove all).

To remove tokens from specific bins, simply enter the price points that you wish to remove tokens from. This feature gives you extra liquidity for managing your position, you may find this useful if you plan to rebalance your existing liquidity position.


Want to read more about Shapes and Strategies?

Read more about the detailed shapes and strategies you can deploy and manage using Liquidity Book to enhance how you can empower your own liquidity providing experience.


Risks when managing liquidity

Engaging in providing Liquidity using the Liquidity Book protocol involves risks, including but not limited to impermanent loss, smart contract vulnerabilities, systemic failures, liquidity crunches, regulatory changes, market volatility, and operational errors. Your capital is at risk; only invest funds you can afford to lose. No assurance or guarantee is provided, and LPs assume all responsibility for their investments. Seek independent financial advice as needed.


If you have any questions about Liquidity Shapes and how to deploy them please join the Trader Joe Discord for further assistance

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