The Significance of DEXes: In the bear market we’ve had in recent times, there’s been an upsurge in investors interest in decentralized exchanges (DEXes) like Uniswap, Pancake and Sushiswap. Self-custody is crucial for investors in the current environment. DeFi innovation is also happening here. Consequently, DEXes are emerging as dominant markets for numerous token projects. Below, we will explore the importance of DEXes, the advantages of adequate liquidity, and how Empirica is helping its clients on these platforms.
While centralized exchanges (CEXes) still play a significant role, the strength of DEXes lies in their user base. Among DEX investors you will find crypto believers, degens and builders engaged in all areas of DeFi. These users are a valuable asset; if you can sway them, you can influence the broader crypto community. However, they can be easily deterred by insufficient liquidity in the liquidity pools.
Ensuring optimal liquidity on platforms like Uniswap is vital for sustainable growth. Increased liquidity leads to higher trading volumes over time, ultimately benefiting token projects.
Moreover, the high transaction volume on DEXes may also prompt CEXes to list your tokens more readily, potentially with reduced or even no listing fees.
DEX exchanges operate differently from their centralized counterparts due to the presence of Automated Market Makers (AMMs). These AMMs utilize built-in algorithms to manage liquidity pools, which can be provided by exchange users themselves.
While many tokens try to provide liquidity to their pools, it often results in inefficient capital usage or considerable losses.
Addressing future price volatility requires setting a wide range, demanding a substantial capital commitment to achieve minimal slippage (or depth) on each trade.
Reducing slippage necessitates maintaining a narrow range, which leads to frequent adjustments and increases vulnerability to Impermanent Loss. Numerous projects suffer monthly losses of up to $20k through this approach.
Passive liquidity
Here you can see the typical situation during this bear market, when liquidity was provided once, and didn’t react to drastic changes in the token price.
Liquidity that follows the market
A narrow range of liquidity that is adjusted continuously ensures low slippage for investors even in a volatile market. It requires also less capital.
Piotr explains the difference between passive and active management of concentrated liquidity on DEX platforms based on examples from the most popular one: Uniswap V3. He demonstrates how to manage token liquidity with efficient use of capital achieving the same results with less burden on token project’s treasury.
Enjoy the video!
We are a liquidity provider that specializes in DEXes. We have significantly invested in automating range adjustments and implementing effective position hedging. By doing so, we support liquidity with minimal slippage, requiring relatively less capital and, notably, without charging you fees for our service. All we need is a loan in your tokens, which Empirica utilizes entirely to provide liquidity to your investors.
You can expect the following benefits when you choose Empirica for market making on DEXes.
24/7 liquidity monitoring
Full automation with our Liquidity Engine
Minimal slippage
Efficient capital usage
Benefits of Empirica Market Making on DEXes:
“It’s hard to be a liqudity provider on DEXes in a bear market. ” – Michal Rozanski, CEO of Empirica, pointed out. “We have seen many companies experiencing tremendous losses due to impermanent loss. An impermanent loss is impermanent only when you have unlimited capital and an endless time horizon. Many market makers have withdrawn from this market due to falling prices for almost two years now. We do not treat impermanent loss as impermanent and know how to deal with it. The pools we provide liquidity to are thriving and we are expanding our systems to help token projects utilize new features of DEXes such as Uniswap v4.”
DeFi Token, August, 2023
With only 5% TVL share, we generated more than 80% volume in 5 weeks for some pools (54% total for all pairs)
Our liquidity vs TVL
Our volume vs token total volume
In just five weeks, our active liquidity management strategy has proven its potential. We embarked on a smaller yet impactful liquidity provision, and the results are speaking volumes.
With a well-engaged investor community rallying behind the token, we strategically allocated $56k (6% of total liquidity) to token volume on Uniswap. The outcome? An impressive 54% increase in total token trading volume for all pairs.
One pair, with our liquidity representing only 5% of TVL, drove an impressive 80% of trading volume. In dollar terms, our positions ignited a remarkable $620k trading volume.
Active liquidity management drives a great capital efficiency. We’re not just trading tokens; we’re trading strategies that drive growth.
CEXes rely on centralized order books, which provide a different trading environment compared to AMMs. We are also market makers on CEXes and can efficiently manage orders, respond to market depth, and adapt to changes in trading volumes and liquidity on centralised platform.
