Kamino Finance: Platform Otomasi Concentrated Liquidity Market Makers untuk Solana DeFi

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20 Jan 2024

Halo SOLdier! Artikel Solana Indonesia is back in the latest edition this week, discussing one of the projects in the Solana ecosystem, namely Kamino Liquidity. Kamino Liquidity is an automatic liquidity solution that allows users to earn interest from crypto assets by providing liquidity to Concentrated Liquidity Market Makers (CLMMs).
Concentrated Liquidity Market Makers (CLMM) represent the latest innovation in automated market makers (AMM) commonly used in decentralized exchanges (DEX).
CLMM Innovation
CLMM differs from typical AMM pools, where user liquidity is "spread" to cover prices. In CLMM pools, your assets are "concentrated" within a specifically chosen price range (e.g., $30-$40 for SOL-USDH). This strategy makes more liquidity available for trading, reducing slippage for swaps.
Therefore, Liquidity Providers (LPs) need to deposit fewer assets to gain the same profit as in traditional AMMs.
Challenges Faced by Concentrated Liquidity Market Makers
Research indicates that many CLMM liquidity providers do not profit from their positions due to the complexity introduced by this new technology. To benefit from CLMM positions, LPs may need to rebalance positions regularly to stay within the "perfect" price range. For most users, this method is considered difficult and time-consuming.
Additionally, because each CLMM position has its parameters (such as trading fees and price range), LP share tokens are no longer fungible. By receiving NFTs, compatibility with other protocols can be eliminated.
Moreover, trading fees earned from CLMM positions cannot be automatically combined, meaning LPs need to manually claim and consolidate their profits.
Solution: Kamino as the Liquidity Layer
Currently, CLMM is poised to be the future of on-chain spot trading but still requires an additional layer to enhance usability. Kamino has built infrastructure to make DEX with CLMM concepts more effective and efficient. By creating an automatic management strategy called Kamino liquidity vaults, it can eliminate complexities in maintaining positions on CLMM.
How to Earn Interest in Kamino Vault?
Kamino Vault spreads liquidity into the operational foundation of DEX pools consisting of 2 tokens. When you deposit into the vault, you automatically receive fees from trading volume. In other words, as a Kamino depositor, you are entitled to earn interest from these swap fees.
Automating Concentrated Liquidity (CLMM) DEX
CLMM is exponentially more capital-efficient than traditional automated market makers (AMMs). However, this efficiency adds complexity, and users often struggle to harness the full potential of providing concentrated liquidity due to:

Price volatility and increased impermanent loss (IL) risk
Inefficiently set ranges
Manual range management
Manually claiming and redepositing fees/bonuses

How Kamino Resolves Liquidity Dilemmas?
Kamino automates the entire LP process and optimizes capital efficiency and returns through:

Rebalancing automated positions
Auto-compounding trading fees & additional incentives
Auto-swaps for single-sided deposits & withdrawals

Additionally, Kamino provides users with kTokens equivalent to a deposit receipt. This means that after depositing into the Kamino vault, you can use kTokens in DeFi.
That concludes the explanation about Kamino Finance. If SOLdier wants more information about this project, you can visit its official website at app.kamino.finance, and also get the latest updates through the official Twitter page @Kamino_Finance.