Liquidity Provision

One of the most powerful features of Magma Finance's ALMM is the ability for liquidity providers (LPs) to create different "liquidity shapes." A liquidity shape refers to the way an LP distributes their liquidity across a range of price bins. This allows for a wide variety of strategies, from passive to highly active.

Here are some of the common liquidity shapes you can deploy:

Spot

The Spot shape provides a uniform distribution of liquidity across a specified range of bins. This is the most straightforward and versatile shape, suitable for most market conditions.

• Strategy: This is a balanced, risk-adjusted approach. It's a good starting point for new LPs or for those who want to provide liquidity across a wider price range without concentrating it too heavily at any single price point.

• Use Case: General liquidity provision for a pair that is expected to trade within a predictable range.

Curve

The Curve shape concentrates more liquidity around the current market price (the active bin) and provides progressively less liquidity in the bins further away.

• Strategy: This is a concentrated approach that aims to maximize capital efficiency. By placing more liquidity where trading is most likely to occur, LPs can maximize their fee-earning potential. However, this also means that the position is more sensitive to price movements.

• Use Case: Ideal for pairs with high trading volume and relatively stable prices. It is also a good strategy for those who are actively managing their positions and can adjust their liquidity concentration as the market moves.

Bid-Ask (Inverse Curve)

The Bid-Ask shape is the inverse of the Curve shape. It concentrates liquidity in the bins away from the current market price, with less liquidity in the center. This shape is often used for single-sided liquidity provision.

• Strategy: This is an advanced strategy that can be used to implement a "buy low, sell high" approach. For example, an LP could place a large amount of USDC in bins below the current ETH price, effectively setting a series of buy orders. Conversely, they could place ETH in bins above the current price to sell as the price rises.

• Use Case: Capturing volatility in a stable or pegged pair, or for executing a dollar-cost averaging (DCA) strategy in or out of a position.

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