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Web3 DeFi Tools

Web3 Yield Profits

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Liquidity Pools (LPs)

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Metrix.Finance

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DeFi Tools

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DeFi Trading Tools

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Liquidity Mining

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Uniswap LPs

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BNB DeFi Blockchain

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Video lesson

Find Hidden Gems

Hidden Gems in Liquidity Mining

Finding the right liquidity provision opportunities can feel a bit like searching for gold nuggets in a river—challenging but ultimately rewarding. In this lesson, we’ll explore how you can identify and maximize returns from liquidity pools in the decentralized finance (DeFi) space. Understanding liquidity mining is crucial in today’s financial landscape, especially as traditional and crypto markets show increasing interconnectedness. By grasping the opportunities in liquidity mining, particularly with platforms like Uniswap, you can enhance your portfolio, whether you’re a seasoned investor or just dipping your toes into the crypto waters.

Core Concepts

Liquidity Pools
Liquidity pools are collections of funds locked in smart contracts that facilitate trading on decentralized exchanges (DEXs). In traditional finance, this concept parallels mutual funds where investors pool resources to trade in various assets. In the crypto world, liquidity pools allow users to provide their assets, earning a portion of transaction fees.
Total Value Locked (TVL)
TVL refers to the total amount of assets staked in a liquidity pool. It serves as a measure of the popularity and trustworthiness of a pool. In traditional finance, consider assets under management (AUM) in a fund; a higher TVL typically suggests lower risk and higher reliability for investors.
Annual Percentage Rate (APR)
APR is a financial term representing the yearly return earned on an investment, expressed as a percentage. In the crypto space, liquidity pools display varying APRs depending on trading volume and market conditions. Understanding APR is essential, as higher rates can mean greater potential earnings.
Asset Correlation
This term evaluates how likely two assets move together in value. Low correlation can reduce risk, while high correlation can amplify potential losses in the traditional and crypto worlds. Assessing correlation in crypto pools ensures you’re not unwittingly overexposed to a market downturn.
Divergence Loss
Divergence loss occurs when the price of the assets in a liquidity pool shifts significantly, leading to a loss on your initial investment in comparison to simply holding the assets. It’s an essential concept that helps you evaluate the risk of participating in liquidity pools versus traditional asset holding.
Simulation Tools
Tools like Metrix.Finance allow users to simulate potential returns on their liquidity provision, helping to visualize possible outcomes before investing. In traditional investing, this can parallel predictive analytics that investors use to forecast investment performance.
Transaction Fees
Fees are charged to traders when they execute trades through liquidity pools. These fees contribute to the earnings of liquidity providers. They are akin to brokerage fees in traditional finance, though often lower in decentralized exchanges.

Grasping these foundational concepts will put you in a solid position as you explore opportunities within the crypto landscape.

Finding Liquidity Pools

1. Exploring DEXs for Opportunities

Head to platforms like Uniswap or Orca.
Browse their pools to identify opportunities that fit your risk profile.
Details: Unlike traditional exchanges, DEXs offer various pools reflecting decentralized trading. Understanding these options in depth can lead to potential profitability—as experienced investors have shown, with some earning over $20,000 from their pools despite market downturns.

2. Using Filters for Targeted Searches

Use filters for APR, TVL, and daily fees. Aiming for pools with a minimum TVL of $2.5 million and APRs exceeding 20% can prioritize longevity and reliability.
Details: By narrowing your focus to these metrics, you’ll hone in on more stable pools, avoiding the traps that come with low-volume meme tokens or risky assets merely circulating buzz.

3. Simulating Returns

Utilize tools that allow you to input deposit amounts and select a price range to evaluate your potential earnings.
Details: These simulations provide insights into how your liquidity provision might perform under various market scenarios—similar to stress-testing in traditional finance.

4. Evaluating Asset Correlation and Volume History

Check the correlation and historical volume of the assets in the pool, ensuring they have consistent trading activity.
Details: Consistency is key; you wouldn’t want to join a pool that has only recently seen activity. Historical data on volume and fees can signal the potential success of a pool.

5. Saving Opportunities for Future Reference

After identifying suitable pools, save them to a portfolio for ongoing evaluation.
Details: Tracking your interest areas lets you stay updated on market conditions affecting your chosen assets.

By refining your search through these steps, you can effectively tap into hidden gems in the liquidity mining world.

DeFi Blockchain Profits

While these concepts might seem straightforward, the crypto world offers nuances that traditional finance does not always accommodate. For instance, the liquidity pools’ ease of access, combined with the lower fees of decentralized exchanges, can create faster returns on investment compared to traditional brokerage fees. Tools like Metrix.Finance also elevate the user experience by granting deeper insights into potential earnings, a feature not commonly available for casual investors in traditional finance scenarios. Projects like Uniswap exemplify how liquidity provision can transform the trading landscape, demonstrating the innovative edge of DeFi over conventional methods.

Real-World Applications

Historical examples of liquidity mining demonstrate its effect on investor strategies across the crypto ecosystem. For instance, early adopters of Uniswap benefited tremendously during the DeFi summer of 2020, experiencing exponential growth in yields as liquidity demands soared. This breakout not only showcased the appeal of liquidity mining but also presented a new avenue for substantial passive income, a concept traditionally reserved for more established financial products.

Challenges and Solutions

Challenges:

High volatility leading to divergence loss.
A lack of information on new or smaller liquidity pools.

Solutions:

Utilizing simulation tools can help you understand possible risks better.
Platforms such as Metrix.Finance offer insights that provide clarity on less popular pools, ideally minimizing risks associated with investing blindly.

As a newcomer, it’s vital to remain aware of these challenges while also embracing the innovative solutions that the DeFi world has to offer.

Key Takeaways

Investing in Liquidity Pools Can be Profitable: You can earn substantial returns compared to traditional holdings, especially in volatile markets.
Understanding TVL and APR Is Fundamental: High TVL and APR are indicators of pool stability and profitability.
Use Simulation Tools: Tools like Metrix.Finance aid in forecasting potential returns and risks, allowing for informed decisions.
Correlations Matter: Assessing how assets relate in historical market movement can prevent overexposure to risk.
Beware of Divergence Loss: Familiarize yourself with the risks involved in liquidity mining to protect your investments effectively.
Stay Informed: Continuously track your investments and the overall market environment to make strategic adjustments.

By internalizing these points, you’ll harness a proactive mindset, critical for thriving in the rapidly evolving crypto landscape.

Discussion Questions and Scenarios

How does Total Value Locked (TVL) impact your decision in choosing a liquidity pool?
Compare the risks involved in traditional investment portfolios to those in liquidity mining.
Discuss an instance where a high APR could be misleading in assessing a liquidity pool’s viability.
How can asset correlation impact your returns in the crypto landscape?
If you could create your own liquidity pool, what assets would you choose and why?
What tools or resources would you consider essential for evaluating the health of a liquidity pool?
How would a broader economic downturn affect liquidity pools compared to traditional financial instruments?

Glossary

Liquidity Pools: Collections of assets in smart contracts that enable trading and earn providers transaction fees.
Total Value Locked (TVL): The total monetary value held within a liquidity pool.
Annual Percentage Rate (APR): A percentage representing potential yearly returns on an investment.
Asset Correlation: A measure of how assets move together in relation to price changes.
Divergence Loss: The loss incurred when the assets in a liquidity pool shift in value compared to holding them.
Simulation Tools: Software or platforms that allow users to project potential investment outcomes based on various data inputs.
Transaction Fees: Charges associated with executing trades in liquidity pools.

By embracing these terms and concepts, you will cultivate a deeper understanding of liquidity mining, empowering your investment strategies in both crypto and traditional finance.

Continue to Next Lesson
In the next lesson of the Crypto Is FIRE (CFIRE) training program, we’ll dive deeper into risk management strategies for cryptocurrency investments. You won’t want to miss it—let’s continue this journey together!

Read Video Transcript

How to Find Hidden Gems In Liquidity Mining

https://www.youtube.com/watch?v=L4-h1wX2jpQ

Transcript:

I’ll be walking through how you can find the best liquidity provision opportunities. So taking a look at this wallet, look, they have about $96,000 in liquidity. And if they were just holding on to their assets in the market and didn’t have their crypto deployed into these pools, they would be at a loss. Look, their assets depreciated.

But since they’re in these pools, they have earned over $20,000 in earnings and are making a profit. So they’re doing this by taking advantage of Wrapped Ethereum to UNI, Wrapped ETH to BZZ, and ENS earnings and are making a profit. So they’re doing this by taking advantage of wrapped Ethereum to uni, wrapped ETH to BZZ and ENS to wrapped ETH.

But you’re probably thinking how exactly can you go about finding these pools? It’s pretty easy to find the top pools with a ton of TVL, like a billion bucks in TVL or $800 million in TVL. But when we’re looking for those opportunities that are a bit smaller, that have solid returns, I’ll be showing you how we can go about finding them.

So when you go over to a decentralized exchange such as Uniswap, you can go over to the pool section and view a bunch of pools. Same thing as another decentralized exchange like Orca. You can go to pools and view a bunch of these pools. But there’s a major issue here. For example, if we click on any of these pools, such as like Solana to USDC, you can see the estimated yield per 24 hours based on 24 hours of data but you can’t see your potential one month apr etc you can’t even see how correlated these assets are you can’t see the volume history anywhere the fee history etc we’re pretty limited

with the data that we can view if we go over to uniswap we can see some more data here if we click on the pool but we still can’t even see how correlated the assets are and we can see some more data here if we click on that pool, but we still can’t even see how correlated the assets are and we can’t run simulations.

So we’ll be using Metrix Finance. It’s the best software for finding liquidity provision opportunities, simulating your returns to see what type of money you could be making and then building out your portfolio. So we can go to the discover section and for exchange, we can select the exchanges we wanna look at.

For this video, we can look at Uniswap, QuickSwap, Orca, and Radium. In the description down below, I’ll leave a link where you can claim a trial to the pro version of Metrix Finance so you can try it out. So take advantage of that if you’d like. Anyways, for networks, we can go to Ethereum, Arbitrum, Base, Solana.

We can look at any other networks we want to look at, such as Optimism. So now there’s over 2,000 pools to go through. That’s a lot of pools. So we can start putting in some filters. We can go to fees APR and look for some pools that have higher than, let’s just say 20% APR if we’re looking for higher APR positions.

And then for TVL, we obviously want to look for pools that have signs of longevity and consistency. So we can look for pools that have higher than, let’s just say 2.5 million bucks in TVl and now we’re down to 221 pools and we also don’t want to have pools that have very low fees per day so average daily fees we can put that at about at least 1 500 bucks a minimum i’d probably be more comfortable moving this up actually to something like 2 500 or more and then yeah from here we can start looking at these positions by default they’re

sorted by tvl we have pools like this meme coin position with over 2 billion bucks in tvl and we have blue chip stable coin positions etc i’m going to disregard the quote unquote meme coin positions i’m not going to look at those i’m just going to look at ones that have assets that i know about such as wrapped eth to wrapped bitcoin usdc to wrapped bitcoin so we can keep scrolling through here and look for opportunities that we’ve never seen.

So I see wrapped ETH to link here. You could click on it. And what’s really cool is that you can simulate your potential earnings. So in the deposit amount section, you could type in the amount that you’d want to invest into the pool, and then you could scroll down and select your range. So we can use a sample one for this video.

So when you select your price range from min and max price, at which what points you wanna provide liquidity for, you can see your estimated yearly APR, estimated yearly earnings and fees, monthly earnings, and even daily earnings. It’s a really cool feature. Scrolling down, you can see how correlated the assets are.

This is very important to know. This is one benefit to the pro version, which you guys can access with that trial. Anyways, these assets show very high correlation. It’s saying 97% correlation. And again, if you were just looking at Uniswap or Orca, you can’t see how correlated the assets are. Here we can see the volume history, the volume per day, and the fees per day.

And here it’s showing the last 30 days of data. You probably want to zoom out and see more, right? So you can go up here to calculation range, zoom out. You can go to like the past 110 days of data and zoom out and see the fees per day and volume per day. I don’t know about you, but if I want to get into a pool, I don’t want to get into a pool that only has solid volume and fees for the past few weeks.

I want to get into a pool that has solid volume and fees for the past few months or even the past year. And then once you’ve selected a pool that you want to get into, you can go ahead and save it to a portfolio. Remember, there’s risks to this investing, such as divergence loss. I’m just here showing you this tool.

Scrolling down, you can see more pools. You can even check out some very high APR positions like this one, or here we have a very high APR position. We can go ahead and simulate it in a new tab. We’ll go ahead and enter our deposit amount again. We can enter a sample deposit amount. And then if you’re getting weird numbers for a max price like 0.005 to 0.

009 you can go to the top swap the order of the assets now you have more normal numbers like 102.6 179.3 then you can see your estimated daily earnings yearly earnings etc and remember if you’re ever looking at a pool and you don’t know the asset that’s in the pool for example here what you can do is copy it go to coin gecko paste it in find the coin and you can start reading about the coin see the price history the market cap etc you can scroll down go to the website of the coin and see the role it plays in the defy ecosystem and see if you’re actually

comfortable taking on exposure to the asset and if the answer is yes great you can go ahead and save it to your portfolio for later and then scrolling down you can see the correlation of the assets again this pool doesn’t have super high correlation as you can see that’s save it to your portfolio for later. And then scrolling down, you can see the correlation of the assets again.

This pool doesn’t have super high correlation, as you can see. That’s just something to keep in mind. Then you can check out the volume history again. You can zoom out like we did. So we can go to the past 100 days, see the volume history, the fee history. You can see where it has had dips, where it has rises, et cetera.

And then once you’ve deployed into positions, you could go ahead and paste your wallet or any wallet and go to the tracking section. It’s a great way to have a bird’s eye view of your portfolio and view really important metrics such as divergence loss. What is your verse holding on to your assets? What is your asset gain, your ROI, etc.

You can even view 24 hour fee projections, seven day fee projections, etc. And it’s a really good way to have a bird’s eye view of your portfolio. You can see how close you are to going out of range. And if you learned something from the video, make sure to subscribe and hit the bell so you don’t miss an upload and comment below what else you’d like to see in the world of DeFi.