Original title: Putting Your Tokens to Work on Meteora
Author: Nick Shaheen, Director of Bankless BD
Compiled by: Ashley, BlockBeats

 

Editor’s note: This article discusses three strategies for LP at Meteora, including the “anti-aliasing” strategy to reduce unpredictable losses through narrow liquidity deployment and frequent rebalancing, the “hot potato” strategy to seize short-term trading peaks and quickly arbitrage fees, and the “staple food” strategy uses wide spreads and unilateral liquidity settings to achieve long-term stable returns. The author emphasized the importance of reasonable coin selection and risk management in LP strategies to help users use funds more efficiently to earn revenue in the Solana ecosystem.

 

The following is the original content (the original content has been compiled for ease of reading and understanding):

 

TL;DR

 

In the DeFi space, LP is an efficient way to earn revenue. Of course, it comes with risks such as erratic losses and market fluctuations. This is essentially part of the game, but mastering the right strategy can effectively reduce risk and increase returns.

 

Meteora, as Solana’s leading liquidity management platform, provides a series of advanced tools to help LPs optimize their liquidity strategies. How to efficiently deploy liquidity is the key to determining profit or loss.

 

 

This article will explore three advanced LP strategies that are suitable for different market environments:

 

·Anti-Sawtooth Strategy: Targeting highly volatile assets with mean regression characteristics.

 

·Hot Potato Strategy: Use short-term trading peaks to maximize fee income.

 

·Bread’n Butter Strategy: Reduce unpredictable losses through market adaptation.

 

Before delving into these strategies, it is recommended to read DLMM and DLMM Multiday Guidelines. Do your homework before jumping into high-risk strategies. If you prefer low-risk operations, you can also choose to deposit USDC in Coinbase and earn an annualized return of about 4%.

 

Anti-Sawtooth Strategy

 

One of the most common problems in the LP process is unpredictable losses caused by sawtooth movements in prices. The “anti-aliasing” strategy is designed to counter this problem by setting a narrow price range and rebalancing positions frequently.

 

Application scenarios:

 

·Applies to assets that fluctuate frequently but maintain stable price ranges over long periods of time (almost all tokens today fit this characteristic).

 

·Asset prices are usually highly volatile, but overall they show a mean regression trend.

 

Implementation steps:

 

·Determine the historical trading range of assets: Select tokens whose prices fluctuate within a certain range but will not develop in a one-way trend over the long term.

 

·Provide liquidity within a narrow range: Use Meteora’s concentrated liquidity tool to concentrate liquidity closer to the middle price to increase fee income.

 

·Rebalance when prices break out of ranges: If prices exceed the set range, don’t bear on unpredictable losses, but adjust liquidity positions in a timely manner.

 

·Use Meteora’s automated tools: Reduce manual operations and improve execution accuracy.

 

“Hot Potato” Strategy

 

The “hot potato” strategy is suitable for short-term fee arbitrage, focusing on capturing liquidity fee gains during peak trading periods. The core of this strategy is to quickly enter the pool of surging trading volume, earn fees and exit in time to avoid unpredictable losses caused by the plunge.

 

Application scenarios:

 

·Suitable for Meme, airdrops and other short-term hot assets.

 

·Suitable for rapid arbitrage when trading volume surges briefly.

 

Implementation steps:

 

·Monitor high-volume liquidity pools: Use gmgn.ai or dexscreener to monitor pools of TVL (total locked value) inflows and rising trading volume.

 

·Deploy liquidity during peak trading periods: Ensure transaction volumes are high enough to maximize fee income.

 

·Exit before trading volume returns to normal: Avoid holding positions for too long to reduce the risk of unpredictable losses.

 

·Revolving funds to improve revenue efficiency: Rotating funds among multiple short-term hot pools to improve overall revenue.

 

Risk warning:

 

·This strategy is essentially like passing on a “hot potato”, with funds rotating very quickly. If you find that a market hot spot has shifted, be sure to decisively stop your losses and don’t become the last person to take the lead.

 

Ole Bread’n Butter Strategy

 

The “staple food” strategy is a more robust LP solution that reduces the need for frequent adjustments by setting a wider liquidity range while continuing to earn fees.

 

Application scenarios:

 

·Suitable for LP players who want to reduce management costs.

 

·Suitable for providing single-sided liquidity, such as providing only SOL or USDC.

 

Implementation steps:

 

·Set a wide liquidity range: Generally set the price range to within-74% of the current price to cope with severe market fluctuations.

 

Provide unilateral liquidity: Provide only one asset (such as SOL or USDC), reducing initial exposure to highly volatile assets.

 

·Choose the appropriate bin step size: Usually, a step size of 100-200 bins is reasonable, allowing prices to fluctuate within a wide range.

 

·Choose long-term bullish assets: Choose tokens that you believe have potential to rise in the future, buy them at a low price when the price retracts, and earn a fee.

 

·Regularly monitor the market: Although this strategy requires less management, it is still necessary to regularly check whether prices exceed set ranges.

 

How to avoid short positions

 

Choosing the right token for DLMM (Dynamic Liquidity Market Making) is crucial and often more important than choosing the right pool. Here are some of the screening criteria recommended by senior Meteora users.

 

Liquidity criteria:

 

·The average trading volume of the K-line in 1 minute is at least $2K, preferably more than $4K.

 

·Trading in the pool should be active, and the trading interval should not exceed 20 minutes.

 

·It is best to have migrated from pump.fun for more than 6 hours (8 hours is more safe).

 

·The market value is at least $2M or more to avoid high volatility risks of low-market assets.

 

The above is for reference only and is not a financial recommendation. Please DYOR, invest carefully and never invest more than you can afford.

 

conclusion

 

Using DLMM for LP on Meteora allows you to flexibly respond to different market environments.

 

·The “anti-aliasing” strategy is suitable for highly volatile, mean-returning assets and focuses on narrow spread trading.

 

 

·The “staple food” strategy is more robust and suitable for long-term LP to reduce management costs.

 

If you can master and implement these strategies, you can earn fees while reducing downside risks, and may even qualify for airdrops. But please be careful, manage risks reasonably, and remember-markets are always full of variables.

 

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