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Concentrated Liquidity Efficiency 🚰

Aerodrome's Slipstream concentrated liquidity pools offer a novel way to maximize capital efficiency and earn higher rewards for LPs.

Here's a primer on Slipstream CL pools and how you can earn more AERO with less liquidity. ✈️

The central trading and liquidity marketplace on BASE

https://aerodrome.finance

CL pools allow LPs to focus their capital within defined price ranges, which can result in deeper liquidity around the active price, reducing slippage and improving the trading experience.

Additionally, CL pools enable better capital efficiency and higher rewards for LPs.

Some of the benefits of CL Pools include:
• Higher Capital Efficiency: Lower slippage and improved trading.
• Increased Rewards: LPs can generate more AERO rewards per token deposited.

Customizable Risk Exposure:

Although CL pools require a more active management style, they also offer greater flexibility. LPs can use the price range selection to align their liquidity to their market outlook.


Let's cover some of the basic technical details on Slipstream pools:

• Stable vs Volatile Asset CL Pools
• Tick Spacing: Minimum size of liquidity ranges
• Fees: Share of trades directed to veAERO voters

Stable CL Pools

Stable CL pools use a more narrow price range boundary (tick space). These pools are optimal for highly correlated pairs like stablecoins coins and LSTs / LRTs, which rarely fluctuate in price relative to their pair.

Volatile CL Pools:

Volatile asset CL pools use wider tick spaces. This allows for more flexibility in capturing price fluctuations for the tokens in the pair.

A tick spacing of 100 (CL100) allows a minimum liquidity range of about 100 basis points wide (a 1% price range).

Stable pools use low tick spaces such as CL1 and CL50, while volatile pools use wider spacing, typically from CL100 to CL2000.

Fees:

Just like basic pools, Slipstream pools collect a swap fee with every trade, although often the fee rate can be set at a lower level, since the pool will be able to attract more volume.

The CL1-WETH/wstETH pool, for example, captures only a 0.01% fee on trades.

An important reminder, 100% of swap fees collected from all Aerodrome pools go to veAERO voters. These votes then direct AERO emissions for LPs across the many pools on Aerodrome.

How to Provide Liquidity:

• Choose a Pool: Browse over 300 pools earning AERO rewards on Aerodrome. Check out the options at https://aerodrome.finance/liquidity.

• Select Your Price Range: Pick a range where you expect the most trading activity.

• Preset Price Ranges - There are three preconfigured intervals you can provide liquidity (narrow, common, and wide).

• Custom Price Ranges: You decide the range of prices you'd like to provide liquidity.

• Deposit Tokens: Add assets to the pool in the right proportion based on your chosen price range.

• Stake & Earn AERO: As long as price remains within your selected range, you will to earn AERO rewards.

* Monitor: Adjust the price range as necessary to maximize AERO rewards.

Slipstream also offers optionality.

During highly volatile periods, LPs often prefer to collect trading fees rather than AERO rewards.Simply leave the LP token unstaked and collect trading fees.

Our next concentrated liquidity piece will introduce Mellow ALM (Automated Liquidity Management)


Tick Spacing:

Tick spacing sets the minimum size of liquidity ranges, which impacts how liquidity is distributed across different price levels.

Concentrated liquidity pools are denoted by symbols like CL1 and CL100, which indicate the size of their tick spaces.