Why and How to use Meteora’s DLMM (Dynamic Liquidity Market Maker)

On Twitter, Meteora’s bio reads, ‘Building the most dynamic liquidity protocols in DeFi.’ This is true, given their unique DeFi approach. This approach includes dynamic vaults that rebalance per minute across 10 lending protocols while searching for optimal yield and dynamic AMMs (pools with farms, LST pools, FX pools, multi-token token pools, etc.).

After intense development, collaboration with the ecosystem and weekly community calls for over a year, Meteora announced the Meteora Stimulus Package, which comprises:

• Expert DAO: A DAO with the best Solana DeFi minds
• The 10% proposal: A proposal for 10% of MET to be set aside for LPs to massively increase Solana TVL growth
• DLMM: A novel dynamic liquidity market maker with dynamic fees and precise liquidity concentration for the best LPing possible

Out of the three, we focus on the DLMM — the flexible new kid in the market maker block. With DLMM, LPs can choose between three sound volatility strategies, review available price bins and the precise price points on which they want to provide liquidity and earn dynamic swap fees during high market volatility to compensate for the impermanent loss.

How do they do all that? I explain below 👇🏼

Since you’re reading this, I assume you are an LP. As you know, there are many reasons to be an LP… Whatever your reason, we can both agree that earning fees and making passive income with your capital is a priority. That said, there is a disparity in the fees LPs earn from their deposits.

What is causing this disparity? You earn fees when trades occur in proportion to your share of the liquidity pool. Also, the more trading volume a pool has, the more fees you are supposed to earn. However, you don’t earn so much because AMMs and other liquidity protocols suffer from inefficient dispersion of liquidity. Their liquidity is spread out from 0 to infinity, meaning idle capital cannot be used at prevailing market prices. And because of that, you miss many opportunities to generate fees.

In addition, most liquidity pools have fixed fee tiers, which means you cannot capture the higher fees paid during high trading periods.

Meteora’s DLMMs are designed to overcome these limitations and earn you the LP as much fees as possible. (We will cover that in a bit).

Meanwhile, LPs aren’t the only ones who should pay attention to Meteora’s DLMM. There’s something too for projects and their teams. With DLMMs, projects have creative, new ways to launch their tokens. For example, they can implement a token sale mechanism that rewards early buyers. Moreover, teams can use a bonding curve to sell tokens and use the funds to support a minimum token buyback price, guaranteeing a token floor price to grow liquidity for their tokens organically. Innovative right?

It is no secret that DLMMs are superior to AMMs, CLMMs, and other conventional liquidity provision methods. You may not know that CLMMs exist or differ from AMM or other liquidity provision mechanisms, but they exist and have some key differences. AMMs distribute liquidity across the entire price range, while CLMMs allow LPs to concentrate liquidity within specific price ranges. CLMMs improve capital efficiency, reduce impermanent loss, and mitigate slippage by focusing liquidity around the current market price. That said, CLMMs require active management from LPs to set and adjust price boundaries, while AMMs offer a more flexible approach to liquidity provision.

DLMMs take everything some steps further. Compared with CLMMs, here’s an image below for more context.

With DLMMs, LPs are almost slippage insulated, enjoy more improved capital efficiency and deeper liquidity for asset pairs, even those with low trading volume and lastly, they allow LPs to make more money on market volatility compared to AMMs. Lemme sneak this in: Meteora’s DLMMs also have the best volatility strategies. 👁️👁️

Meteora’s DLMM offers LPs different strategies for providing capital. Let’s explore these strategies and note their advantages compared to conventional volatility strategies.

Spot allows uniform capital distribution, making it a versatile and risk-adjusted strategy suitable for any market condition. Using spot can be similar to setting a CLMM price range, allowing spot users to trade at various prices. Spot’s advantages include:

1. Simplicity: I think the spot strategy is straightforward, making it perfect for new and inexperienced liquidity providers who prefer less frequent rebalancing.
2. Flexibility: LPs generate fees whenever, regardless of the price, by providing liquidity across the entire price range.
3. Adaptability: Spot is tailor-made for unstable market conditions where prices fluctuate widely.

The bid-ask strategy is an inverse curve that allocates most LP capital towards both ends of the price range for in or out DCA. This strategy handles larger volatility swings away from the typical price range. Bid-ask advantages include:

1. Greater fee capture: With the Bid-ask, you can capture higher fees from increased trading activity during volatile market periods.
2. Volatility optimization: LPs effectively maximize profitability by concentrating liquidity at the extremes of the price range.
3. Capital efficiency: Since you focus on larger volatility swings, you capture significant price swings rather than providing liquidity across the entire range.

Compared to the Spot or Bid-Ask, the DLMM Curve strategy focuses on providing liquidity in the middle of the price range. It is great for stables or pairs where the price stays mostly the same. Using the curve strategy, you can allocate different amounts of tokens at various price points and build a desired liquidity shape that aligns with your goals. Here are its advantages:

1. Reduced slippage: By focusing liquidity in the middle of the price range, slippage is reduced for trades within a range. LPs can provide liquidity with zero slippage within each bin, enhancing the trading experience for users.
2. Enhanced control: With curve, you can actively manage and adjust your liquidity concentration within your preferred price range.

Now, onto some insider info below.

We have discussed Meteora DLMM’s benefits in detail above. Experienced LPs know simply providing liquidity into a pool, or in this case, the DLMM, is not the smartest way to maximize capital. Usually, it is a specific pair or token with an exponential APR/APY.

With Meteora, it’s not just a select few but a diverse range of tokens to choose from. What’s more? You also earn cross-app/platform, e.g., MET and Kamino points, by depositing in Meteora or Kamino. How? Since Kamino Finance integrated selected DLMM pools into their vaults and points system, when you provide JUP liquidity for selected pairs, you can triple-earn bonus token rewards (~$300k worth), MET points, AND Kamino points!

This section focuses on JUP, the token launch that broke Solana records with about one million wallets eligible for the airdrop. Whether airdropped or bought from the secondary market, you can earn from your JUP and other tokens through Meteora and Kamino finance.

• Incentives: 5K JTO / week. 4 weeks, ends Feb 28
• MET points: 2x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/4dPX2rrJgSEeB7sLrM9SdTE9PWzfeMe8Ky5YCfqQCwMD

Meteora pool: https://app.meteora.ag/dlmm/2QrWsSWrGvoAqkDC5XSGqjS752RWLaopqAaGrbugSxBL

• Incentives: 4M BLZE / week. 4 weeks, ends Feb 28
• MET points: 2x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/HBuYwvq67VKnLyKxPzDjzskyRMk7ps39gwHdvaPGwdmQ

Meteora pool: https://app.meteora.ag/dlmm/6cDtJkcJKFEsGDhptmgvy3XtbwyRqnW3GoGcmnwVzJ7U

• Incentives: 852M BONK / week.
• Initially 4 weeks, ending Feb 28 -> New end date: ~March 4
• MET points: 2x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/HS4VSMsJDuJTmKfZkXsM9JNwp4pK1LVTc7GLmiu5jNBT

Meteora pool: https://app.meteora.ag/dlmm/BrMYU1XWCqMAtBURD8yp3d9gni3uHxomoj5JG9LWr7Mj

• Incentives: 241M CHONKY / week. 4 weeks, ends Feb 28
• MET points: 1.5x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/954b3GZGCuzZouUCh7fn8AybjyWKRXN95vF742NJYnPz

Meteora pool: https://app.meteora.ag/dlmm/AdURuZu6DJ8gGwHvp3zaE6AyvcVaP1uAGF9MQUN4SwqZ

• Incentives: 30M GECKO / week. 2 weeks, ends Feb 14
• MET points: 1.5x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/BFWhp6e88s2DHeGxeyxYVagwTEmjaXkUSHnGzGCCGxJK

Meteora pool: https://app.meteora.ag/dlmm/4qSKPwsoVra36azX3xnjqMRU1XixGPS8s4QG6HzLAHgk

• Incentives: 415K ARAB / week. 2 weeks, ends Feb 14
• MET points: 1.5x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/HBZRKiRX88gpoBgZxNtnWHk5bPcbCM3ociEPWNS131cK

Meteora pool: https://app.meteora.ag/dlmm/ASDU6QtKhi1vEAT29nhD74dkRS6ziUeqZ1wqAJjMGeVB

• Incentives: 168K USEDCAR / week. 2 weeks, ends Feb 14
• MET points: 1.5x
• Kamino points through Kamino Vault

Kamino: https://app.kamino.finance/liquidity/3hE7PZ6Lq7NCof5uJeVDLtxUfJa21Btda5GtV4oXfbe5

Meteora pool: https://app.meteora.ag/dlmm/FomE9Ghozgo9Am1o7NrkBzK32WFnJ9467wViBYbTKTR

Kamino: https://app.kamino.finance/liquidity/8CsQpQrgmN68wxNRw1G9uejmAWYpAjCg9XBpr2KE7ESV

Meteora pool: https://app.meteora.ag/dlmm/FNZsxG8QrUb5er8NR2fHuLo9nkQqKzxLf6p96R6fggZH

Kamino: https://app.kamino.finance/liquidity/71rmGfXzmPWyrLJCiJPcvBptyBBGKwEw3WiyAn18v3ai

Meteora pool: https://app.meteora.ag/dlmm/A6u8tWDtSNuEyZSZufoP9TGQvuEREKnpGcNP7xUsYMKq

https://app.meteora.ag/dlmm/HHMcXebyUakhxnZavV9LBspv8SgsphoEbfhCjz8xPGe1

https://app.meteora.ag/dlmm/7ZW4JsTZeuogmiJHMPtwxZXYYkKYVzYUGUdjbqutRcQK

Here’s a TLDR of what you can earn providing JUP liquidity:

From Kamino:

• MET points
• Kamino points
• Token incentives

From Meteora DLMM bonus pools: Token incentives and MET points

From other Meteora pools: MET points

There’s something that got me excited about Meteora’s DLMMs: claiming liquidity rewards. You see, I wanted to provide liquidity on Kamino Finance’s JUP-WEN vault, and I needed some WEN top-up. I then remembered I had some liquidity rewards on Meteora, hopped on there, claimed my swap fee reward and completed providing liquidity to the Kamino vault.

Voila!

Meteora absolutely loves liquidity providers!

Why so?

Because LPs are the noble knights of the Solana ecosystem. By simply providing their capital, they provide liquidity for other traders and reduce slippage. Meteora was created to build products that solve LP’s pain points and make them much more money with their capital. Meteora’s DLMM is the perfect tool to do so.

So what are you waiting for? Skyrocket your gains by hopping onto Meteora today!