Why you should not provide liquidity to Uniswap V3 by Yourself (About ALM protocols)

Always removed on r/ethfinance so I reposted here

Unlike Uniswap V2 Automated Market Maker with simple equation x*y=k, Uniswap V3 Constant Function Market Maker has much much much much complex equations. IL is not fixed, it depends on your fee, range, rebalance,

I will skip that, if you’re a math savvy person then you should read this article by Guillaume Lambert. Also you may want to check out his project Panoptic, an oracles-less perp option leveraging Uniswap V3

If you’re just an avg LP like me, there’re two things you need to know

1. Half of Uniswap V3 LPs are losing relative to hodl. CryptoPotato —Arxiv. This is not a game for retails, if you don’t know what you’re doing, you may get rekt with this IL graph

2. A third of Uniswap V3 LP positions are rebalancing every day. Uniswap Blog — Uniswap Research. Even if you understand what you’re doing, you often have to actively rebalance your positions. Not to mention the gas fees accumulated from your rebalance will hurt your portfolio.

Now, what should we do? This is where ALM protocol comes in. ALM stands for Automated/Active Liquidity Management/Manager. Sorry idk which one is the right one. Anyway,

If you aware of ALMs protocol, you’d know this space already becoming a read ocean. There are a bunch of projects building ALM protocols, first I’ll mention four I’ve tried before and not having a token, then the others

Note that ALM protocols are extremely risky due to its complexity, especially the one which use rebalance strategy with smart contract on-chain

Aloe Capital: Recently showed-off about its outperformance of Charm and Gamma in the bear trend. It’s possible bc they somehow boost the LP tokens with yield from Compound

Arrakis: The most popular ALM today leveraging smart contract automation of Gelato Network

Charm: One of if not the OG of Uniswap V3 ALM

DefiEdge: ALM which is active but not automated, LP tokens managed by human

Gamma, Izumi, Mellow,Popsicle, Teahouse, UniverseUniverse

I know I’m still stupid so somone pls cmiiw. Other resources on ALM

Bankless: How to Automate Uniswap V3 Liquidity

0xKydo: PALM: Protocol-owned Active Liquidity Management

Tuoniaox: Analysis of Major ALMs (Not English)