Concentrated Liquidity MM (CLMM)
Umbra's Concentrated Liquidity (CL) is heavily inspired by Raydium V3, bringing next-generation liquidity solutions to the Eclipse blockchain.
Traditional full-range pools, such as those introduced in earlier AMM designs like Raydium V2, offered immense value for long-tail assets. However, they also introduced inefficiencies, as liquidity was distributed across every possible price point. This often left a majority of the liquidity unused. For example, in the USDT/USDC trading pair, most activity is concentrated within a narrow price range, such as 0.99 to 1.01. Liquidity outside this range remains dormant, missing opportunities to optimize trading efficiency and fee generation.
Concentrated Liquidity, inspired by Raydium V3, addresses these inefficiencies by enabling liquidity providers (LPs) to concentrate their liquidity within specific price ranges. This approach allows LPs to allocate capital more effectively, deepening liquidity at high-activity price points, facilitating smoother trading with reduced slippage, and significantly increasing fee generation. Additionally, LPs can customize their positions to align with market conditions and trading preferences, even creating multiple positions within a single pool. This flexibility enables strategies similar to order books while maintaining the ease of automated trading through Umbra’s AMM infrastructure.
By leveraging custom price curves, Umbra’s CL unlocks innovative features and adjacent products:
Automated Liquidity Managers: CL enables the development of dynamic vaults that accept liquidity and adjust price ranges in response to market conditions, maximizing fee potential for LPs.
Limit Orders: Custom price ranges allow LPs to create limit-order-like positions, facilitating trades at specific target prices.
Options-Like Strategies: Concentrated liquidity design supports advanced strategies, including options-like products, by allowing LPs to focus liquidity in precise ranges.
Umbra’s adoption of Raydium-inspired CL empowers LPs to maximize their fee capture potential while enabling the development of new products that enhance the overall ecosystem.
Out-of-Range Liquidity
In Umbra’s CL model, out-of-range liquidity occurs when the market price of an asset moves outside the bounds of an LP’s chosen price range. When this happens, the LP’s liquidity stops participating in trades and no longer earns fees. Instead, it becomes concentrated in one of the two assets in their position.
For example, if an LP provides liquidity between $1.00 and $1.10, and the price moves below $1.00 or above $1.10, their position becomes inactive. In this state, the LP’s funds are held entirely in one asset until the price re-enters the specified range. At that point, the liquidity becomes active again, and the LP resumes earning fees.
Managing out-of-range liquidity is essential for optimizing returns. LPs can:
Adjust Positions: Reposition their liquidity to reflect current market conditions.
Withdraw Liquidity: Redeploy their funds elsewhere or modify their strategy.
With tools inspired by Raydium V3, Umbra provides LPs with enhanced analytics and management interfaces to actively monitor and optimize their positions, ensuring liquidity remains in active trading ranges for maximum efficiency and profitability.
Incentives and Fees
Users who provide liquidity to Umbra pools receive multiple rewards and incentives, including:
Eclipse Points – Earned through liquidity provisioning and ecosystem participation.
Umbra Points – Accrued from staking LP tokens and participating in governance.
Dual Reward Pools – Some pools may offer additional incentives from Umbra's partner projects.
What We're Changing Unlike Raydium
While Umbra draws inspiration from Raydium V3, we are implementing several key improvements to enhance the liquidity provisioning experience on the Eclipse blockchain:
ve(3,3) Emission Model – Unlike Raydium, Umbra adopts a ve(3,3) model, allowing LP emissions to be directed via governance, rewarding long-term protocol participants and optimizing liquidity distribution.
Dual Rewards for LPs – Some LPs pools maybe receive both $UMBRA emissions and external partner incentives, making liquidity provision more rewarding.
Hybrid Fee Model – Instead of a one-size-fits-all fee structure, Umbra offers preset fee tiers, allowing for greater flexibility across different asset classes and market conditions.
Bribe and Gauge Voting System – Projects can compete for emissions through bribes, ensuring that incentives are efficiently allocated to the most active liquidity pools.
Future Dynamic Fee Adjustments – While initially using preset fees, Umbra plans to integrate dynamic fee structures that adjust based on market volatility and liquidity demand.
By making these improvements, Umbra enhances the efficiency, flexibility, and profitability of liquidity provisioning while empowering the Eclipse DeFi ecosystem with next-generation AMM mechanics.
Empowering LPs and the Eclipse Ecosystem
Umbra’s adoption of Raydium-inspired CLMM empowers LPs to maximize their fee capture potential while creating opportunities for new products and financial instruments. By enhancing liquidity efficiency, reducing slippage, and enabling dynamic strategies, Umbra’s CL model strengthens the overall Eclipse DeFi ecosystem and positions it at the forefront of next-generation AMM technology.
For more information about Umbra's CLMM, we recommend exploring Raydium V3 documentation and related resources.
Liquidity providers and traders can also find useful tools to visualize liquidity and assess price risk associated with providing liquidity in CLMMs. Searching for terms like 'AMM concentrated liquidity price calculator' can help locate these tools. Please exercise caution and verify the reliability of any external links you use.
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