# Introduction ## At a glance * **What we do**: Non-directional, usage-based liquidity provision and systematic execution on DEXs (e.g., Uniswap, Raydium) and perps venues. * **Objective**: Consistent returns with a target of \~10% per month up to \~$500k AUM. Focus on reliability rather than directional bets. * **Risk posture**: Strategies are designed to remove price exposure and earn from network usage and transaction volume. See `../insurance-and-risk-mitigation.md` and `../risks.md`. * **Further reading**: Fees policy (`../fees_structure.md`), operating costs (`../cost-structure.md`), and reporting (`../performance-and-reporting.md`). For background on concentrated liquidity, see Uniswap V3 concepts at `https://docs.uniswap.org/concepts/protocol/concentrated-liquidity` and Raydium resources at `https://raydium.gitbook.io/raydium/`. A Brief History of Liquidity For most of the history of cryptocurrencies, assets were only tradable through a[ centralized broker](https://www.coingecko.com/en/exchanges) or directly peer-to-peer. Decentralized exchanges emerged in the late 2010s but were inefficient, centralized, and had poor liquidity. In late 2018, Uniswap V1, the first true Automated Market Maker(AMM), premiered.

Uniswap introduced decentralized [liquidity pools.](https://support.uniswap.org/hc/en-us/articles/8829880740109-What-is-a-liquidity-pool-) "Liquidity providers" or "LPs", could deposit their assets into two-sided liquidity pools to provide liquidity for [ERC-20](https://ethereum.org/en/developers/docs/standards/tokens/erc-20/)/ETH pairs and earn trading fees. This process was later expanded to ERC-20/ERC-20 pairs on [Uniswap V2](https://medium.com/@chiqing/uniswap-v2-explained-beginner-friendly-b5d2cb64fe0f). Uniswap's architecture kept swaps fast and efficient for traders.

Since then Uniswap's AMM model has become the dominant decentralized exchange model. Numerous [forks and variations](https://defillama.com/forks/Uniswap%20V2) of Uniswap V2 have also emerged since then. Another process that emerged was protocols [incentivizing liquidity providers with rewards](https://www.coindesk.com/learn/what-is-yield-farming-the-rocket-fuel-of-defi-explained/) to increase liquidity in pools. This is known by many names, including yield farming, liquidity mining, or mercenary capital. Liquidity mining was extremely profitable and helped grow DeFi exponentially in 2020. However, a long-term problem emerged during this growth period. Uniswap was not as efficient as it could be. It lacked [*capital efficiency*](https://twitter.com/haydenzadams/status/1380217938867843072?s=20)*.* Liquidity could only be provided *full-range*, meaning that liquidity providers (LPs) had to provide liquidity far outside the ranges of the current price of the assets. All LPs chose the same position. The only variable was how much they put in. ### Concentrated Liquidity A solution to the full-range problem came in March 2021. Uniswap released [Uniswap V3](https://blog.uniswap.org/uniswap-v3). One of the many new features was [concentrated liquidity.](https://docs.uniswap.org/concepts/protocol/concentrated-liquidity) Uniswap V3 allowed users to choose the range (via [ticks](https://docs.uniswap.org/contracts/v3/reference/core/libraries/Tick)) at which they wanted to provide liquidity.

This relatively simple change had dramatic effects on the market. Liquidity pools became much more efficient. Fees could only be earned by those who provided liquidity within the proper ranges. Although LPs could still offer full-range positions, they became less competitive. The liquidity concentration and range began to adjust in real-time to match the needed liquidity for any pool. A dynamic new market emerged in the world of liquidity.

Uniswap V3's [BUSL License expired](https://docs.uniswap.org/contracts/v3/guides/governance/liscense-modifications) on April 1st, 2023. After it expired, established Uniswap V2 forks like [PancakeSwap](https://thedefiant.io/pancakeswap-v3-live) and [SushiSwap](https://blockworks.co/news/sushiswap-uniswap-v3) immediately adopted concentrated liquidity Other non-fork exchanges like [Balancer](https://twitter.com/Balancer/status/1659007145155739649) and [Kyberswap ](https://docs.kyberswap.com/liquidity-solutions/kyberswap-elastic/concepts/reinvestment-curve)also embraced concentrated liquidity approaches. Although there were doubts about the profitability and sustainability of concentrated liquidity, [Decentralized Exchange Aggregators](https://coinmarketcap.com/alexandria/article/what-are-dex-aggregators-a-deep-dive-by-1inch) proved decisive in routing trades to them. Concentrated liquidity now dominates the decentralized trading space. ### New Challenges Concentrated liquidity was a huge change for the liquidity provider, and not all of the changes were positive. Concentrated liquidity pools introduced a new *risk* to LPs providing liquidity called **impermanent loss**. Mitigating impermanent loss is challenging, and providing liquidity became significantly more complex and risky for the average user. **Analytics**, or understanding the performance and profitability of LP positions, were nearly non-existent when concentrated liquidity was deployed. Nor were there standardized measurements for things like impermanent loss. **Incentives,** famously declared dead by a slew of DeFi thinkers, [didn't die,](https://defillama.com/yields) but became a more complex and calculated endeavor. Farmers could be rewarded for more than *how much funding* they put in but also for *how they provided funds.* Another issue that popped up was protocols being able to **manage their own** liquidity pools and their [treasuries](https://defillama.com/protocol/gamma). If a protocol were to deploy on Uniswap V3 and not manage the liquidity correctly, it could prove disastrous for their health. There was immediately a need to solve these issues. ### Liquidity Managers Concentrated Liquidity Managers (CLMs) or Concentrated Liquidity Market Makers (CLMMs) are [protocols](https://defillama.com/protocols/liquidity%20manager) that are designed to deal with the new challenges of concentrated liquidity. Different liquidity managers have different priorities. Some focus on one aspect of concentrated liquidity. Some do it all. Orphic Finance **was created to solve all of the challenges of concentrated liquidity.** Orphic Finance provide LPs with the most optimized performance on a variety of supported [platforms and blockchains](https://docs.gamma.xyz/gamma/features/supported-platforms). Orphic does this by mitigating impermanent loss and accumulating fees using proper [strategies.](https://docs.gamma.xyz/gamma/features/strategies) That performance is viewable on our [Analytics](https://docs.gamma.xyz/gamma/features/analytics). Orphic also supports a variety of in-house and 3rd party platforms for protocols to reward[ incentives](https://docs.gamma.xyz/gamma/features/incentives) to liquidity providers. Finally, Orphic offers protocol liquidity and treasury management services to a variety of projects. ### Reality Check: Competitive Liquidity One of the most important yet misunderstood concepts in concentrated liquidity is its inherent *competitiveness.*

It's very important for liquidity providers and protocols to understand that they are now in a **competitive space**. Nobody, no matter how skilled at management, is always profitable. Pools can be oversaturated with liquidity for the amount of volume, which leads to poor fee performance for the LPs, even in ideal conditions. High volatility can make even the best-managed pools take losses. A group of users who gets incentives have a huge advantage over those who don't have them. Full-range positions and sustained four-figure APRs are simply not going to happen much anymore. ### The Future With the development of [Uniswap V4](https://blog.uniswap.org/uniswap-v4), [Algebra V2](https://medium.com/@crypto_algebra/the-algebra-protocol-v2-updates-a-step-forward-d863181d10d8), [Balancer V2](https://medium.com/balancer-protocol/balancer-v2-generalizing-amms-16343c4563ff), and more, concentrated liquidity is here to stay. Orphic will continue to support compatible blockchains and exchanges and offer advanced strategies for retail LPs and professional organizations. Orphic will also continue to improve its analytics suite, and strategies --- # Agent Instructions: Querying This Documentation If you need additional information that is not directly available in this page, you can query the documentation dynamically by asking a question. Perform an HTTP GET request on the current page URL with the `ask` query parameter: ``` GET https://docs.yfarmer.xyz/alm/start/quickstart.md?ask= ``` The question should be specific, self-contained, and written in natural language. The response will contain a direct answer to the question and relevant excerpts and sources from the documentation. Use this mechanism when the answer is not explicitly present in the current page, you need clarification or additional context, or you want to retrieve related documentation sections.