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EARN PASSIVE INCOME WITH DEFI VIA MARKET MAKING
EARN PASSIVE INCOME WITH DEFI VIA MARKET MAKING
WHAT IS THE OVERALL GOAL?
WHAT IS THE STRATEGY?
WHAT DO I PROVIDE?
HOW DO I GET STARTED?
WHAT ARE THE RISKS?
WHAT ARE THE OPEN QUESTIONS?
WHY DON'T I JUST HOLD ETH?
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Thought Experiment on Market Conditions

Below is a thought experiment on what happens when you provide liquidity during various market conditions vs. just HODLing your tokens.
⁠

Initial Conditions

50-50: USDC-ETH
100% fees - Maximum fees collected.
This is not the APR.
So sideways actions (the price remains constant) - you collect 100% of the maximum fees distributed.
These are not real percentages either.
Market Making in a Market
Market Conditions
Initial Capital
USDC
ETH
Final Capital
vs. HODL
Fees Collected (APR)
Fees + Gains
Risk
1
BULL
50/50
UP
DOWN
UP
UPUP
100%
120%
Risk - IL due to ETH increasing
Risk - Stuck holding USDC (if you don’t act)
Strategy - Liquidate + Reposition to reduce IL (can not completely remove it) + maintain ETH holding (although slightly less)
2
BEAR
50/50
DOWN
UP
DOWN
DOWNDOWN
80%
50%
Risk - IL due to ETH decreasing
Strategy: hodl since you are Long ETH + Collect fees
3
SIDEWAYS
50/50
SIDE
SIDE
SIDE
SIDE
100%
100%
Risk - Opportunity cost
Strategy: hodl and collect fees
There are no rows in this table
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