The Strategy Parameters determine how liquidity in a Uniswap V3 pool is being managed by an Alpha Pro vault.
The parameters are updatable on-chain, and allow projects (or their governance) to have full control over the vault’s strategy.
The key parameters are summarised below:
% of total liquidity allocated to Full-Range
The width of the base order
The width of the limit order
Withdraw liquidity and deposit into a new range determined by the parameters above.
The minimum rebalancing frequency
Lower % of liquidity in Full-Range will deposit more liquidity into the ranges determined by
limitThreshold. This results in higher liquidity, and therefore better price discovery if trading takes place inside the ranges.
Higher % of liquidity in Full-Range will lower liquidity inside the range, but price discovery will be better if trading takes place outside the range.
The width of the base order is twice the size of ‘B’ in Fig 3. It determines the differences between the upper and lower price of a range order centred around the spot price.
The base order is used to concentrate liquidity, and the width should be set much wider than the expected price range, so the liquidity will still be good if the price trends up or down for a while.
The width of the limit order is ‘L’ in Fig 3. It determines the absolute difference between the upper or the lower price of a limit order, and the spot price.
The limit order is used to minimise impermanent loss (IL), by attempting a faster rebalance to a 50:50 inventory ratio when the price consolidates toward the average price. The narrower the limit order, the faster the rebalance but the vault may be imbalanced again if the price consolidates too much.
The width of the limit order should therefore depend on the amount of token incentives to compensate for IL, and the extent projects expect mean reversion to take place.
The rebalancing methodology depend on the minimum rebalancing frequency (determined by
setPeriod), and who calls the
rebalance()can either be called by the projects (or their governance) using keeper bots, or by anyone (eg community members).
setPeriodcan only be called by the projects (or their governance). More frequent rebalancing will result in better liquidity, at the cost of higher impermanent loss for LPs.
The rebalancing methodology will therefore depend on:
- The total amount of incentives offered to compensate IL.
- The amount of extra incentives offered to trigger rebalancing.
- The amount of treasury funding used for rebalancing.
- The level of engagements projects wish to have with their community.
- The project’s existing resources.
Charm will provide a front-end where projects can deploy their own vaults using Alpha Pro, and a front-end for users to deposit or withdraw liquidity. Projects can also use their own front-end.
Charm will also work with projects to advise the best set of Strategy Parameters.