With the expansion of Unipilot to Polygon, we introduced a handful of new features. One of these, concentration preferences, is designed to cater to a wider audience and provide more choices to our users.
With this feature, you can select the preferred degree of concentration for your liquidity from the following options:
- Narrow: Earn high liquidity fees with the potential for more impermanent loss.
- Balanced: A good balance between earning high liquidity fees and minimizing impermanent loss.
- Wide: Moderate fees but less impermanent loss.
As you can see from the screenshot above, the Narrow USDC/WETH vault has a 7D APR of 480%, as liquidity is tightly concentrated around the current trading price. When liquidity is concentrated like this, a higher portion of trades are being routed through your position, so you earn more liquidity provider fees. With wider ranges, less of your liquidity is being utilized by the market during trading, so returns are lower.
Something to consider with highly concentrated positions is the potential for greater impermanent loss, as the position is being swapped between the two assets (in this case, WETH and USDC) more frequently than in a wider position. During periods of extreme price volatility, this impermanent loss will be more pronounced.
We also offer Balanced and Wide vaults, which offer a 7D APR of 175% and 104%, respectively at the time of writing. Which vault you choose will depend on your preferences and expectations for market volatility. If the assets were to trade within a reasonably tight range, then during this period, a narrow range would prove to be highly profitable. Conversely, during periods of high volatility, a relatively wider range might be beneficial.
We plan to bring these concentration preferences to our Ethereum dApp and will use them with our future launches on L2 networks.