Position Types on DEX: Concordex Guide

Concordex, with its state-of-the-art trading platform, offers a myriad of features for traders who seek to optimize their strategies in the decentralized exchange landscape. One of the essential elements to grasp for maximizing your trading efficacy is understanding the different types of positions you can establish on Concordex. From Concentrated Liquidity Positions to Full Range and Single-Sided Positions, knowing when and how to use these can be a game-changer for your trading portfolio.

This guide aims to provide you with a detailed walkthrough of these different types of positions. Whether you are a seasoned trader or new to the DEX scene, understanding these positions will help you navigate the complexities of decentralized trading more effectively.

Concentrated Liquidity Positions

Definition and Explanation

Concentrated Liquidity Positions allow you to provide liquidity within a specific price range rather than across all price ranges. In other words, you’re essentially telling the protocol to use your assets only when the price of the traded tokens is within a specified range.

How It Differs From Traditional Liquidity Provision

Traditional liquidity provision involves supplying equal values of two assets across all price ranges. Concentrated liquidity turns this concept on its head by allowing you to limit your exposure to specific price movements, offering more control and potentially higher returns.

Advantages:

• Higher Returns. Concentrated liquidity can lead to higher returns, as your capital is only used in the price ranges you find most beneficial.
• Reduced Exposure. You only expose your capital to price fluctuations within the selected range, potentially lowering risk.

Disadvantages:

• Impermanent Loss. If the token price moves out of your specified range, you might experience impermanent loss.
• Complexity. The strategy requires a good understanding of market conditions to set the optimal range, which can be challenging for newcomers.

When to Use Concentrated Liquidity Positions

This strategy is best used when you have a strong belief that the price of the assets will remain within a certain range. If you’re knowledgeable about market trends and can anticipate price movements, this type of position offers a tailored approach that could yield high rewards.

Example Scenarios and Use-Cases

Imagine you are holding a pair of ETH and USDC. You anticipate that ETH will trade between $2,000 and $2,500 in the next month. By setting a concentrated liquidity position within this range, you ensure that your liquidity will be used primarily when ETH’s price falls within this bracket, optimizing your returns.

Full Range Positions

Definition and Explanation

Full Range Positions are the traditional form of liquidity provision. In this type, you provide liquidity across the entire price range, from zero to infinity. This means your assets will be used for trades, irrespective of the current price levels of the tokens in the liquidity pool.

How It Differs From Concentrated Liquidity Provision

Unlike Concentrated Liquidity Positions, Full Range Positions do not limit your capital to a specific price range. Your assets are available for trading across all price levels, giving you broader exposure to market movements.

Advantages:

• Simplicity. Easy to set up and understand, making it beginner-friendly.
• Consistent Fees. As you’re exposed to all price ranges, you will collect fees from a broader array of trades.

Disadvantages:

• Lower Returns. The returns could be lower when compared to well-executed concentrated liquidity positions.
• Increased Exposure. There is a higher risk of impermanent loss due to exposure to all price ranges.

When to Use Full Range Positions

Full Range Positions are best suited for those who prefer a “set it and forget it” approach. If you’re not interested in actively managing your positions and are comfortable with broader market exposure, this is the right choice for you.

Example Scenarios and Use-Cases

Suppose you hold equal values of ETH and USDC and have no particular insights into the price movements of ETH. By choosing a full-range position, you’re opting for a simpler, more passive way of earning trading fees from all transactions involving the ETH/USDC pair in the liquidity pool.

Single-Sided Positions

Definition and Explanation

Single-Sided Liquidity, or SSL for short, allows you to contribute to a liquidity pool with just one asset type. This feature is particularly useful if you primarily hold one asset and still want to participate in liquidity provision.

How It’s Different

While traditional liquidity pools like Full-Range and Concentrated positions require two types of assets, SSL lets you bypass this, making it simpler and more accessible.

How it works? In SSL, your liquidity is placed either to the left or right of the current spot price, effectively making it ‘inactive’ until the spot price shifts into your specified range.

For example, if you set up a sell position at a range of 1200–1300 in token B, and the current spot price is at 1 token A = 1350 token B, you initially earn nothing because the spot price is outside your range.

However, your SSL activates when the spot price moves into your 1200–1300 range. Your token B starts converting into token A, your position transitions from SSL to an active Concentrated Position, and you begin earning fees and boosted rewards.

Advantages:

• Low Barrier to Entry. Only one asset is needed for participation.
• “Limit ordering” possibility. Since your locked token starts converting into another one when the price strikes the bounds of your position, you can use it as an analog to limit order on CEXs. The main task is to close the liquidity position so it will not start converting back when the price returns.

Disadvantages:

• Lack of Spot Price Benefits. When the spot price does not fall within the range of your single-sided position, you miss out on earning fees, making this approach less lucrative if the asset’s price remains static or moves unfavorably.

When to use SSL?

SSL is an excellent choice if you want significant exposure to a particular asset or aim to use SSL as a limit order tool. It’s also beneficial for portfolios that lack diversity.

Conclusion

Understanding the different types of liquidity positions is crucial for making informed decisions on Concordex. Whether you’re a seasoned trader or new to the DeFi space, knowing when to use Concentrated Liquidity, Full Range, or Single-Sided Positions can significantly impact your trading experience and profitability. Choose the option that best suits your financial goals, risk tolerance, and level of engagement. Happy trading!