Introduction to FUSION
FUSION is a collaborative development that abstracts and automates the management of concentrated liquidity pools, enhancing capital efficiency and user experience. FUSION pools are the combination of Algebra Concentrated Liqudity AMM with one of our blue-chip Automated Liquidity Manager partners (Gamma, DefiEdge and ICHI).
Concept of Concentrated Liquidity
In the classic Uniswap V2 AMM, liquidity is evenly distributed across the entire price curve of the token pair (0, +∞), equally rewarding dormant liquidity and liquidity effectively utilised for end-user swaps. DEX utility tokens emitted to rent LP liquidity are not capital efficient, and fees cannot be directed towards liquidity actively used for swaps.
Concentrated liquidity pools enables the discrete allocation of the liquidity within specific price ranges, allowing them to collect trading fees when the current price falls within the established range. Similar to an order book, the aggregated liquidity exhibits a more "concentrated" distribution around the market price of the token pair. For end-users, concentrated liquidity provides better price execution than UniV2 pools for any given level of TVL, while more efficiently rewarding LPs.
Algebra - Concentrated Liquidity AMM provider
Algebra provides the underlying concentrated liquidity AMM technology for FUSION that enables the liquidity provision through custom price ranges, facilitating discrete liquidity provision and the execution of advanced market-making operations on THENA.
Dynamic Fee Structure
Algebra includes an innovative fee structure composed of:
Base fee: Base component that can be freely set and modified by the core team without needing to redeploy liquidity to a new pool. This feature offers an extra layer of flexibility for THENA's protocol partners when executing their liquidity strategies on the BNB chain.
Dynamic fee: Component that automatically adjusts according to market volatility, liquidity, and trading volume to maximize generated fees. During periods of high volatility, fees should be increased to compensate for potential losses faced by liquidity providers. Conversely, when trading volume is low and there is sufficient liquidity, fees should be reduced to attract more volume.
Impermanent Loss Risk
In concentrated liquidity pools, passive LPs are more subject to impermanent losses. As the price shifts, LPs end up holding more of one asset while traders acquire more of the other. LPs may eventually hold a single asset position as the price of the pair approaches either the lower or upper limit of the range. The situation can worsen when the price surpasses one of the boundaries: the LP position now consists of a single asset that is decreasing in value and not generating trading fees.
Given the inherent volatility of the crypto market, LP positions in concentrated liquidity pools need frequent rebalancing to avoid extreme impermanent losses. Although concentrated liquidity pools bring a higher level of granularity to DeFi, profiting from liquidity provision within custom ranges demands sophisticated market-making skills that may be beyond the reach of the average retail liquidity provider.
Active Liquidity Managers ("ALM") Integration
The integration of concentrated liquidity pools with various ALM addresses the complexity of these pools for non-professional liquidity providers.
An ALM protocol actively adjusts LP ranges to maximise the fee generation while mitigating the impermanent loss risk. ALMs are natively integrated into FUSION, providing LPs with a seamless experience and access to a battle-tested market-making service.
ALM partners integrated into FUSION:
Learn More
Last updated
