Token Ratio Charts Boost Liquidity Provider Efficiency & ROI

Yield Monitor is now tracking Trader Joe’s v2.1 Liquidity Book pools. Liquidity Book is a novel design by Trader Joe; their own take on the increasingly popular concentrated liquidity model, which aims to increase capital efficiency for liquidity providers.

While more efficient than traditional AMMs, concentrated liquidity models put more effort on the user, as they need to actively manage their positions to stay profitable and avoid heavier impermanent loss.

Yield Monitor’s new Token Ratio charts help liquidity providers visualize their positions; allowing them to exit positions (for example, Trader Joe bins), swap assets with less slippage, and re-enter new positions to maintain profitability and reduce position monitoring time.

DeFi users need more data, performance charts, and actionable insights faster, in human-readable context. As liquidity pools
evolve from traditional automated market maker (AMM) models to more advanced ideas like concentrated liquidity, users need visual tools with even better, faster infrastructure to index and process trading activity.

With our visual Token Ratio charts, users can make data-driven decisions about their portfolios even faster. Additionally, Token Ratio charts help concentrated liquidity providers make sense of fast-moving liquidity pools; allowing them to better manage their funds in real time.

In a traditional liquidity pool, we know that the value of assets must be equal via the simple formula: x*y=k, where x and y represent the quantities of (usually) two tokens in a liquidity pool, and k is a constant.

In traditional AMMs, the user’s liquidity is spread across near-infinite price ranges to ensure trading can occur across all price ranges. While ground-breaking in the context of DeFi and blockchain innovation, it’s now considered a model that limits efficiency for the liquidity providers and traders that leverage the pool to swap assets.

Newer designs like concentrated liquidity allow users (liquidity providers) to more strategically allocate their funds across specified price ranges according to their preferences and investment strategies. This reduces trade slippage, increases capital efficiency, and allows customized risk preferences for liquidity providers.

The downside? Far more active investment management on behalf of the liquidity providers. Put simply, the liquidity providers face range selection risk and increased complexity when seeking ROI for their investments via concentrated liquidity models.

Actively monitoring — and adjusting — positions increases the fees a user experiences when using a DeFi protocol, too. If the user does not make a well-timed or strategic adjustment, they must repeat the process; incurring more fees and, potentially, impermanent loss. If they don’t update their positions, they risk less capital efficiency (lower ROI), or suffer from significant impermanent loss.

The fallout hurts liquidity providers and their faith in protocols.

It doesn’t take much effort to find irritated or confused (or both) liquidity providers on common communication channels Twitter (sorry, X) or protocol Discord communities. They often express frustrations at impermanent loss, UI / protocol confusion, lack of documentation, or complain about the increased complexities of newer protocol models.

In an effort to make DeFi more efficient, protocols risk alienating users. Proper data infrastructure and visual portfolio tools can make them happy and more profitable.

Let’s use and example of how Yield Monitor’s (free!) tools help users succeed. We’ll use Trader Joe’s popular Liquidity Book as an example.

We’ll use two popular pools — BTC.b<>AVAX and AVAX<>USDC — as examples. We’ll show you our charts as examples, and DeBank’s own data to confirm Yield Monitor’s accuracy via a third party reference.

In the screenshots below (taken 07.31.2023) we see a few datasets from Trader Joe’s Analytics page. As shown, their novel concentrated liquidity design involves a “bin” system that liquidity providers can leverage to maximize their capital efficiency to earn higher rewards.

In this first example, the BTC.b <> AVAX pool, we see one bin selection provides liquidity for trading at an allocation of 2225.60666 AVAX to 0.00045 BTC.b. In the pool distribution image, we see that particular bin has 0 BTC.b allocated for liquidity.

The potential issue for liquidity providers who are not actively managing their positions is impermanent loss — users looking to gain BTC.b are at risk of removing capital (selling LP tokens) and realizing a majority of AVAX tokens upon withdraw.

In this second example, the AVAX<> USDC pool, we see one bin selection provides liquidity for trading at an allocation of 13.09292 USDC to 0.07639 AVAX. In the pool distribution image, we see that particular bin has 4626.06727 allocated for AVAX liquidity, and 100.74712 allocated for USDC liquidity. This shows that a liquidity provider with a high allocation in this particular bin may experience impermanent loss of USDC, as the allocation is heavily AVAX.

Trader Joe’s bin system executes these trades via contracts assigned to each bin — a tribute to a highly complex and capable system that, while ground-breaking, can put additional monitoring responsibility on the user.

Users must constantly monitor and manage their bin allocations to avoid potential impermanent loss and remain vigilant of price and pool trading activity to ensure maximized ROI with their provided liquidity.

Yield Monitor’s updated Token Ratio charts offer real-time, visual insights into the performance of these pools and, in the case of Trader Joe, the user’s bin positions.

Put simply: visual charts help liquidity providers find ideal times to exist and re-enter bin positions; reducing management time and maximizing their capital efficiency strategies.

In the images below, we see a user’s pool positions within BTC.b<>AVAX and AVAX<>USDC. In the first image, we see the liquidity provider currently holds 12.0381 AVAX, worth $157.09. In this bin, there is zero BTC.b allocation. For reference, the second image displays the same pool with the $USD Value toggle activated. This shows users the combined USD Value of the assets within the LP Token itself.

Take a deeper dive in Yield Monitor’s portfolio charts and expanded details data in this guide.

This article uses Trader Joe’s Liquidity Book and bin system as an illustrative example. It should be stated, however, that different protocols have different ways of deploying and managing their concentrated liquidity systems and contracts.

For Example: we can see this in CAKE <> WBNB liquidity pool on PancakeSwap that the liquidity spread is not so exclusive; there are equal amounts of CAKE and WBNB, for example.

As we’ve shown, concentrated liquidity provides novel opportunity for users willing to put the effort and attention on their own strategies and, in the context of Trader Joe, allocated bins.

When leveraging Yield Monitor’s additional data and liquidity pool analytics, a user might find this workflow valuable:

• Find ideal liquidity pool on Trader Joe
• Enter bin(s) based on investment preferences and strategies
• Track wallet (for free!) in Yield Monitor’s growing dashboard toolkit
• Watch their liquidity pool performance via portfolio charts
• Exit bins when appropriate based on Token Ratio chart data
• Swap assets at strategic times using Yield Monitor’s advanced trade router
• Re-enter Trader Joe liquidity pool bins as desired
• Track in Yield Monitor and repeat process as needed

By leveraging Yield Monitor’s additional context and performance data metrics, DeFi users and liquidity providers can be more efficient and increase profitability with visual context.

Users can swap on Yield Monitor’s advanced router to get better rates, lower gas, and faster trades before they reenter the pool with new liquidity positions. Instead of pulling liquidity from one single protocol, Yield Monitor leverages liquidity from hundreds of protocols to maximize trade routes to serve users better, faster.

Try it for yourself – with no added fees.

Using this strategy for ourselves, our Yield Monitor test wallet made 6% profit in a short amount of time — and saved costs on swaps. The bonus? Yield Monitor’s tracking tools are completely free, highly scalable, and sustainably built.

We look forward to future announcements as we continue to integrate more networks, more protocols, and more protocols leveraging novel concentrated liquidity concepts.