Concentrated Liquidity AMM
Overview
Thruster's Concentrated Liquidity (CL) is heavily based off Uniswap v3.
Full-range pools provided by Uniswap v2 and similar designs provided immense value for long-tail assets. Yet it was always clear there were also inefficiencies in the design because liquidity was provided at every possible price point, a majority of the assets in a pool would be unused in most scenarios. For instance, consider the USDT/USDC pair, where the majority of trading activity is concentrated within a narrow price range, such as 0.99 to 1.01. In such cases, the liquidity provided outside of this range remains largely dormant and could be more strategically allocated elsewhere to enhance trading efficiency and maximize fee generation.
Concentrated liquidity, inspired by Uniswap v3, revolutionizes liquidity provision by allowing users to concentrate their liquidity within specific price ranges of their choice. By doing so, liquidity providers can deepen liquidity at popular price points, facilitating smoother trading experiences and reducing slippage for traders. Additionally, this approach allows liquidity providers to optimize their fee potential by targeting specific trading ranges where transaction volumes are high. One of the key advantages of concentrated liquidity is its flexibility, as each liquidity position is unique and can be tailored to suit specific market conditions and trading preferences. Users have the freedom to create multiple liquidity positions within a single pool, enabling them to implement pseudo-order book strategies while traders can still benefit from the automated swapping capabilities of AMMs.
By enabling custom curves, several new features and adjacent products can be built on top of CL-based exchanges:
Automated liquidity managers: Because the Uniswap v3 design allows for dynamic management of liquidity, protocols and strategy managers can build vaults that accept liquidity and adjust custom ranges based on market conditions to maximize fee capture.
Limit orders: Custom price ranges in Uniswap v3 enable the creation of limit orders that sell or purchase assets at specific price points, offering greater control over trading execution.
Options: As shown by protocols like Panoptic, concentrated liquidity protocols can be leveraged to effectively create options-like payouts on ranges.
Similar to Uniswap v3, Thruster will allow for LPs to freely create and interface with these unique price curves, which should lead to an increase in fee capture and also enable some of the adjacent products mentioned above.
Out of Range Liquidity
When liquidity is out of range, it means the asset's price has moved outside the bounds set by an LP’s position. In this state, the liquidity no longer participates in trades and stops earning fees. Essentially, the liquidity is inactive until the price re-enters the specified range.
For example, if an LP provides liquidity between $1.00 and $1.10 and the price drops below $1.00 or rises above $1.10, their position is considered out of range. At that point, the liquidity becomes concentrated in a single asset—the one that remains in the LP’s position.
Even though out of range liquidity is inactive, the LP still holds their assets. When the price moves back into the LP's range, the liquidity becomes active again, allowing the LP to resume earning fees. LPs can adjust their positions by either withdrawing their liquidity or repositioning it to a new price range to maintain activity.
Managing out of range liquidity is crucial for maximizing returns, as LPs need to monitor market conditions and adjust their price intervals to keep their liquidity in active trading ranges.
What We're Changing
Unlike Uniswap v3, which took a more agnostic approach for getting builders to use its infrastructure, Thruster will be taking an active approach to work with the best teams to best leverage this to build unique products & integrate them directly into our user interface.
More information about these endeavours can be found on our featured partners' page, but we are actively working with teams to bring active liquidity strategies, native leverage, and more to Thruster directly.
As well, we are introducing:
Built-in Active Liquidity Incentives: More will be announced about this soon, but protocols currently struggle to incentivize v3 liquidity for assets of choice due to the difference between active liquidity and passive liquidity. We are creating a solution to allow protocols to more easily incentivize v3 liquidity.
V3 Liquidity Management Partners: We are working with several top teams to provide active strategies to Thruster Concentrated Liquidity. While we cannot guarantee the 100% safety of these strategies, we are encouraging security to be a top priority and are only working with teams who have made a similar level of commitment as us.
Incentives and Fees
Users get incentives for depositing into Thruster liquidity pools. These incentives include:
Blast Points
Blast Gold
Trading fees
Users can also opt into getting Partner Incentives and Yield by depositing their LP tokens into partner protocols that support Thruster LP tokens. This includes but is not limited to Hyperlock, Particle, or Juice, who all support Thruster LP tokens in different ways, allowing you to earn incentives from their programs as well.
Users are also eligible to earn Blast Gold from these protocols as well, making providing liquidity on Thruster one of the best incentive stacks to exist.
With regards to fees, a share of of LP fees go toward a pool, with ZERO fees taken on Blast Points or Gold earned by the liquidity providers. Fees accrued once Thruster further decentralizes will be used as determined to bolster the utility of the Thruster protocol via expanded decentralized governance.
For more references about Thruster CL, we recommend visiting Uniswap v3 documentation and accompanying resources.
For liquidity providers and traders, there also are good tools to better visualize liquidity and price risk with LPing via CL. Search “AMM concentrated liquidity price calculator” or similar queries. Please exercise risk when using these links.
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