I've heard about concentrated liquidity for quite some time. Maybe as far as the end of the previous cycle or the beginning of the current one. Not sure if at that time it was only theoretical or there were platforms providing the option to concentrate liquidity. So, it's been a few years since then.
But now there are enough platforms which offer this possibility, and it's likely the future in defi. One of them, at least.
Now, I've only started testing one of them, the Dynamic Liquidity Market Maker (DLMM) on Meteora with one of the simplest strategies possible: a spot volatility strategy on one of the major SOL-USDC LPs with high liquidity and daily volume. But I've watched a couple of videos, and I've seen a number of strategies, some simpler, some more complicated. None of them as simple as just proving liquidity to a pool and forgetting about it, from what I could see. Well, maybe except if we are talking about a full stablecoin pool.
Most strategies involve constant tweaking of the range in which you provide liquidity, plus choosing a good "shape" of the distribution of your liquidity within the range, and a good pair in case the price goes out of range and you end up holding only one of the tokens in the pair. I've seen quite a few what I would call reckless strategies where the LP didn't care what one of the tokens was or even if they would rug pull, as long as they potentially earn a ton of fees for a short while. That seems to stem from the meme coin mentality, translated to the LP world.
Given the amount of tweaking these positions may need to stay in range, they could be a use case where investors would rather use AI agents in the future to fine tune their LP positions. Maybe they already are doing that.
So far the fees I earned in the 1-2 hours I've been in the pool aren't worth mentioning, but they are adding up. By watching the position evolve, it seems to work a lot like leveraging, because at small price differences the distribution of the tokens in your position change dramatically. So... one would have to be careful about that!
My current range for my concentrated liquidity, let's hope it stays there for a while to have a good initial experiment:
Note that on Meteora, you may not be able set a range as wide as you feel comfortable due to tech constraints. You can narrow it as much as you want but you can't widen it more than 69 bins (small price steps where liquidity is provided).
It is obvious that concentrated liquidity attracts a lot of liquidity. If fees are also small and the blockchain is relatively stable (which Solana may not be), this can be a recipe for success which says more about why Solana is so hot right now, meme coins aside.
I don't know if this would be considered something useful on Hive (concentrated liquidity), but if it would, I think at L2 is where its place should be.
I know some of you have been using DLMMs (or other concentrated liquidity pools) for a while. If you have some advice for a noob on Meteora and in the concentrated liquidity area from your experience, I'll appreciate if you shared it. Thanks in advance!