Considerations When Providing Liquidity on CLMMs
Less than half of the LPs utilizing the CLMM were generating a profit compared to keeping tokens, according to a study conducted six months following the launch of Uniswap V3, the first DEX to incorporate the CLMM.
If you want to keep your concentrated position tightly around the current price, providing liquidity to a CLMM may take a lot of active management. This implies that when prices approach the edges of your current range, you must close your trade and put up a new range to avoid experiencing IL and losing all of your fees.
On Ethereum Virtual Machine chains (EVM), which struggle with scalability concerns and high fees during periods of high traffic, this can be tremendously expensive. This doesn't matter on Solana because transactions are executed for less than a penny; nevertheless, if prices stray outside of your target range, you will still get 100% of the less valuable token LPed.
Just-in-time (JIT) liquidity is another issue that is not a concern while delivering CLMM liquidity on Solana. Validators deposit liquidity just in time and at a very high concentration to collect the greatest fees when they see a significant deal being conducted via a CLMM in the mempool. This is not possible because Solana has no mempool.
Maintaining your position actively is necessary to keep your liquidity within a narrowly concentrated range. Historically, fees for liquidity offered in the 1%–5% range have been higher than those for liquidity provided in more passive areas.
