Why and how to use Meteora’s Dynamic Liquidity Market Maker (DLMM) | by Harvesto Orlando | Coins | March 2024

Meteora’s bio on Twitter reads: ‘Building the most dynamic liquidity protocol in DeFi.’ This is true considering their unique DeFi approach. This approach includes dynamic vaults that rebalance per minute across 10 lending protocols while searching for optimal yields and dynamic AMMs (pools with farms, LST pools, FX pools, multi-token token pools, etc.).

After over a year of intensive development and collaboration with the ecosystem and weekly community, Meteora has announced the Meteora Stimulus package, consisting of:

• Expert DAO: DAO with the best Solana DeFi minds
• 10% Proposal: A proposal to allocate 10% of MET to LPs to significantly increase Solana TVL growth.
• DLMM: A new dynamic liquidity market maker with dynamic fees and precise liquidity concentration for best LPing.

Among the three, we focus on DLMM, a flexible newcomer on the market maker block. DLMM allows LPs to choose between three sound volatility strategies, review available price ranges and the exact price points at which they wish to provide liquidity, and earn dynamic swap fees to compensate for impermanent losses during periods of high market volatility.

How do they do it all? I’ll explain below 👇🏼

If you are reading this, I assume you are LP. As you know, there are many reasons to become an LP… Whatever your reasons, we can all agree that earning commissions and earning passive income from your capital is a priority. That said, there is a difference in the fees LPs earn on deposits.

What causes this gap? You will receive a commission when a trade occurs proportional to your share of the liquidity pool. Additionally, the higher the trading volume in the pool, the more fees you will pay. estimated To earn. However, AMMs and other liquidity protocols suffer from inefficient liquidity distribution and therefore do not yield much returns. Liquidity is distributed from 0 to infinity, meaning that idle capital cannot be used at prevailing market prices. And because of that, you miss out on many opportunities to generate commissions.

Additionally, most liquidity pools have a fixed fee tier, so they cannot capture high fees paid during periods of high trading volume.

Meteora’s DLMM is designed to overcome these limitations and allow LPs to collect as much fees as possible. (We’ll cover this in a moment).

Meanwhile, LPs are not the only ones who should pay attention to Meteora’s DLMM. There are also ones for projects and teams. DLMM allows projects to have creative new ways to release tokens. For example, you could implement a token sale mechanism that rewards early buyers. Teams can also organically increase the liquidity of tokens by selling tokens using a bond curve and using funds to support a minimum token repurchase price, guaranteeing a token floor price. Innovative, right?

It is no secret that DLMM is superior to AMM, CLMM and other traditional liquidity provision methods. You may not know that CLMMs exist or that they are different from AMMs or other liquidity provision mechanisms, but they do exist and have some important differences. AMM distributes liquidity across an entire price range, while CLMM allows LPs to concentrate liquidity within specific price ranges. CLMM improves capital efficiency, reduces impermanent losses, and mitigates slippage by concentrating liquidity at current market prices. In other words, CLMMs require active management by LPs to set and adjust price boundaries, while AMMs offer a more flexible approach to providing liquidity.

DLMM takes everything a few steps further. See the image below for a detailed comparison with CLMM.

With DLMMs, LPs enjoy improved capital efficiency and deeper liquidity for asset pairs, with virtually no slippage, even when trading volumes are low, and finally, LPs can make more money from market volatility compared to AMMs. Let’s take a sneak peek at this: Meteora’s DLMM also has the best volatility strategy. 👁️👁️

Meteora’s DLMM offers a variety of strategies for providing capital to LPs. Let’s take a look at these strategies and see their advantages compared to traditional volatility strategies.

Spot allows for uniform capital distribution, making it a versatile, risk-adjusted strategy suitable for all market conditions. Using spot can be similar to setting CLMM price ranges, allowing spot users to trade at a variety of prices. Spot’s advantages include:

1. Simplicity: The simplicity of the spot strategy makes it ideal for new and inexperienced liquidity providers who prefer to rebalance less frequently.
2. Flexibility: LPs generate fees at any time, regardless of price, by providing liquidity across the entire price range.
3. Adaptability: Spot is built for volatile market conditions where prices fluctuate significantly.

The buy-sell strategy is an inverse curve that allocates most LP capital to either end of the price range inside or outside the DCA. This strategy deals with greater volatility outside the typical price range. The benefits of requesting bids include:

1. Capture larger fees: Bid requests allow you to capture higher fees due to increased trading activity during volatile market periods.
2. Volatility Optimization: LPs effectively maximize profitability by concentrating liquidity at the extremes of the price range.
3. Capital Efficiency: Because we focus on larger volatility movements, we can capture significant price movements rather than providing liquidity across the entire range.

Compared to Spot or Bid-Ask, the DLMM Curve strategy focuses on providing liquidity in the middle of the price range. Perfect for a stable or pair where the price stays about the same. The curve strategy allows you to allocate varying amounts of tokens at different price points and build the desired form of liquidity that suits your goals. The advantages are:

1. Reduce Slippage: Reduce slippage for trades within the range by concentrating liquidity in the middle of the price range. LPs can improve users’ trading experience by providing liquidity without slippage within each bin.
2. Enhanced Control: Curves allow you to actively manage and adjust liquidity concentration within your preferred price range.

Now take a look at the inside information below.

We have discussed the benefits of Meteora DLMM in detail above. Experienced LPs know that simply providing liquidity to a pool (in this case, DLMM) is not the smartest way to maximize capital. Typically, this is a specific pair or token that has an exponential APR/APY.

Meteora allows you to choose from a wide range of tokens, rather than just a select few. What else? You can also deposit into Meteora or Kamino to get cross-app/platform points like MET and Kamino points. how? Kamino Finance has integrated selected DLMM pools into its vault and points system, so providing JUP liquidity on selected pairs can result in triple returns. Bonus token rewards (~$300,000 worth), MET Points, Kamino Points!

This section focuses on JUP, the token launch that broke Solana’s record with nearly one million wallets eligible for airdrop. Whether through airdrops or purchasing on the secondary market, you can earn through JUP and other tokens through Meteora and Kamino financing.

• Incentive: 5K JTO/week. 4 weeks, ends February 28th
• MET Points: 2x
• Kamino Points via Kamino Vault

Kamino: https://app.kamino.finance/liquidity/4dPX2rrJgSEeB7sLrM9SdTE9PWzfeMe8Ky5YCfqQCwMD

Meteora Pool: https://app.meteora.ag/dlmm/2QrWsSWrGvoAqkDC5XSGqjS752RWLaopqAaGrbugSxBL

• Incentive: 4M BLZE/share. 4 weeks, ends February 28th
• MET Points: 2x
• Kamino Points via Kamino Vault

Camino: https://app.kamino.finance/liquidity/HBuYwvq67VKnLyKxPzDjzskyRMk7ps39gwHdvaPGwdmQ

Meteora Pool: https://app.meteora.ag/dlmm/6cDtJkcJKFEsGDhptmgvy3XtbwyRqnW3GoGcmnwVzJ7U

• Incentive: 852 million BONK/share.
• First 4 weeks, ends February 28 -> New end date: ~March 4
• MET Points: 2x
• Kamino Points via Kamino Vault

Camino: https://app.kamino.finance/liquidity/HS4VSMsJDuJTmKfZkXsM9JNwp4pK1LVTc7GLmiu5jNBT

Meteora Pool: https://app.meteora.ag/dlmm/BrMYU1XWCqMAtBURD8yp3d9gni3uHxomoj5JG9LWr7Mj

• Incentive: 241 million CHONKY/share. 4 weeks, ends February 28th
• MET Points: 1.5x
• Kamino Points via Kamino Vault

Kamino: https://app.kamino.finance/liquidity/954b3GZGCuzZouUCh7fn8AybjyWKRXN95vF742NJYnPz

Meteora Pool: https://app.meteora.ag/dlmm/AdURuZu6DJ8gGwHvp3zaE6AyvcVaP1uAGF9MQUN4SwqZ

• Incentive: 30 million GECKO/share. 2 weeks, ends February 14th
• MET Points: 1.5x
• Kamino Points via Kamino Vault

Kamino: https://app.kamino.finance/liquidity/BFWhp6e88s2DHeGxeyxYVagwTEmjaXkUSHnGzGCCGxJK

Meteora Pool: https://app.meteora.ag/dlmm/4qSKPwsoVra36azX3xnjqMRU1XixGPS8s4QG6HzLAHgk

• Incentive: 415K ARAB/share. 2 weeks, ends February 14th
• MET Points: 1.5x
• Kamino Points via Kamino Vault

Camino: https://app.kamino.finance/liquidity/HBZRKiRX88gpoBgZxNtnWHk5bPcbCM3ociEPWNS131cK

Meteora Pool: https://app.meteora.ag/dlmm/ASDU6QtKhi1vEAT29nhD74dkRS6ziUeqZ1wqAJjMGeVB

• Incentive: 168K USEDCAR/share. 2 weeks, ends February 14th
• MET Points: 1.5x
• Kamino Points via Kamino Vault

Kamino: https://app.kamino.finance/liquidity/3hE7PZ6Lq7NCof5uJeVDLtxUfJa21Btda5GtV4oXfbe5

Meteora Pool: https://app.meteora.ag/dlmm/FomE9Ghozgo9Am1o7NrkBzK32WFnJ9467wViBYbTKTR

Camino: https://app.kamino.finance/liquidity/8CsQpQrgmN68wxNRw1G9uejmAWYpAjCg9XBpr2KE7ESV

Meteora Pool: https://app.meteora.ag/dlmm/FNZsxG8QrUb5er8NR2fHuLo9nkQqKzxLf6p96R6fggZH

Kamino: https://app.kamino.finance/liquidity/71rmGfXzmPWyrLJCiJPcvBptyBBGKwEw3WiyAn18v3ai

Meteora Pool: https://app.meteora.ag/dlmm/A6u8tWDtSNuEyZSZufoP9TGQvuEREKnpGcNP7xUsYMKq

https://app.meteora.ag/dlmm/HHMcXebyUakhxnZavV9LBspv8SgsphoEbfhCjz8xPGe1

https://app.meteora.ag/dlmm/7ZW4JsTZeuogmiJHMPtwxZXYYkKYVzYUGUdjbqutRcQK

Here’s the TLDR about how much you can earn by providing JUP liquidity:

On the Camino:

• MET points
• camino points
• Token Incentive

From Meteora DLMM Bonus Pool: Token Incentives and MET Points

From other Meteora pools: MET Points

What gets me excited about Meteora’s DLMM is the liquidity compensation claim. As you know, I wanted to provide liquidity to Kamino Finance’s JUP-WEN vault and needed a WEN top-up. Then I remembered that I had liquidity rewards from Meteora, so I went on there and claimed the swap fee rewards and completed providing liquidity to the Kamino vault.

Voila!

Meteora absolutely loves liquidity providers!

Why is that so?

Because LPs are noble knights of the Solana ecosystem. By simply providing capital, you provide liquidity to other traders and reduce slippage. Meteora was created to solve the pain points of LPs and create a product that generates significantly more returns on their capital. Meteora’s DLMM is the perfect tool to do this.

So what are you waiting for? Jump into Meteora today and skyrocket your profits!