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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.

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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 Making in a Market

Market Conditions

Initial Capital

USDC

ETH

Final Capital

vs. HODL

Fees Collected (APR)

Fees + Gains

Risk

BULL

50/50

DOWN

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)

BEAR

50/50

DOWN

DOWNDOWN

80%

50%

Risk - IL due to ETH decreasing

Strategy: hodl since you are Long ETH + Collect fees

SIDEWAYS

50/50

SIDE

100%

Risk - Opportunity cost

Strategy: hodl and collect fees

There are no rows in this table

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