Author: @0xAndrewMoh
Compiled by: Biteye Core Contributor Crush
The rapid growth of LPDfi has caused a sensation, and it is hailed as the next hot narrative after LSDfi.
All information about LPDfi is in this article, hoping it will be helpful to you.
Table of Contents
- What is LPDfi?
- What problems does LDPfi solve?
- The first 6 recommended projects in the LPDfi narrative
- Personal feelings
01. What is LPDFi?
LPDfi (Liquidity Derivatives Finance) uses Uniswap V3 LP (CLAMM) to create financial derivatives for Perpetual DEX, options, and currency markets.
It helps liquidity providers earn higher fees by more efficiently utilizing LP on Uniswap V3.
Advantages of LPDfi products:
- For users: Experience higher returns on liquidity mining by increasing token incentives, reducing impermanent loss risk, and simplifying centralized liquidity provision.
- For Uniswap v3: Witness an increase in liquidity, user base, and trading volume.
- For LPDfi: Solve the liquidity shortage problem of output products at a reasonable cost.
(Note: The term LPDfi introduced by @logarithm_fi creates a new liquidity layer for LPs, allowing Uniswap LPs to release unprecedented returns, creating a new asset market.)
02. What problems does LDPfi solve?
The DEX market is very broad. According to DeFiLlama's data, Uniswap's TVL alone has reached $3.26 billion, and the total TVL of all DEXs has exceeded $11.8 billion. LPDfi mainly utilizes Uniswap, while other DEX protocols such as Curve, Balancer, and Velodrome still have abundant resources waiting to be developed. Uniswap V3 has the potential to reduce impermanent loss, but it has not been fully utilized under current strategies. Uniswap V3, while increasing capital utilization, also brings some liquidity issues. For example, users need to constantly manually adjust LP positions to prevent impermanent loss, which is extremely complex and time-consuming. In addition, many people currently try to protect their assets from volatility by purchasing options or futures contracts. However, this method is ineffective and requires high costs to avoid impermanent loss risk. But with the emergence of LPDfi, users no longer need to manage liquidity themselves. They can optimize profits and protect assets by trusting the LDPfi project and protocol to automatically handle liquidity measures.
03. The 6 recommended projects in the LPDFi narrative
@logarithm_fi
Logarithm is one of the more well-known projects in the LSDFI narrative, which found that the current temporary loss prevention measures are not optimal for Uniswap V3.
The protocol allows users to:
- Earn unlimited LP fees through Uniswap V3, maximize liquidity returns, and minimize price risk.
- Hedge LP impermanent loss risk to ensure profitability under all market conditions.
In addition to these, there are two more features:
Liquidity Shell: Maximizes Logarithm users' profits by reasonably allocating liquidity assets on the LPDfi platform.
Nautilus Vault: Maximizes profits using delta-neutral strategies and reasonable allocation of liquidity assets.
@LimitlessFi_
Limitless operates on the Uniswap V3 platform, providing a comprehensive solution for participants.
In addition, Limitless takes measures to optimize the profits of Uniswap liquidity providers and address temporary impermanent loss.
KyberSwap
The second protocol to be introduced is KyberSwap, which is a platform built on @KyberNetwork, a liquidity protocol running on the blockchain.
Its main goal is to provide trading at the best prices by integrating multiple liquidity sources.
@dopex_io
Dopex is a project centered around options trading, offering a range of products.
It is built on the Arbitrum ecosystem, serving to increase liquidity for users, reduce risk, and increase profits for option buyers.
Dopex uses a dual token model:
- $DPX: Governance token for voting and revenue sharing.
- $rDPX: Staking certificate, whose value increases over time.
Option sellers and liquidity providers can earn DPX and rDPX tokens by staking assets.
Dopex V2 will integrate Uni v3 liquidity, creating American-style options to be executed before expiration.
(Note: Using options to hedge is one of the common ways for Uniswap V3 LPs to manage impermanent loss.)
@Panoptic_xyz
Panoptic is a protocol for options trading similar to #Dopex, but with a focus on Perps options.
Traders can trade long or short options with up to 10x unlimited leverage, similar to longing or shorting crypto assets.
Panoptic utilizes Uniswap V3 LP to provide liquidity for option buyers and sellers.
By doing so, Panoptic earns commissions and can also share with borrowers of assets in the Panoptic pool (used for LP on Uni V3).
@goodentrylabs
Good Entry is a position protection product designed to protect traders from liquidation during significant or artificial market fluctuations.
It offers 10x leverage, built on Uniswap V3, and utilizes a mechanism similar to options.
When users deposit on ezVault, the protocol optimally allocates their LP on Uniswap.
The limited partners of ezVault act as option sellers, while traders act as option buyers at certain entry points (strike prices).
In just 3 months, ezVault has achieved the following:
- 795 Supplies
- $1.3 million TVL
- 4 major treasuries ($WETH, $WBTC, $ARB, $GMX)
04. Personal feelings
In the ever-evolving DeFi market, different components are constantly innovating. In these developments and innovations, LPDfi is becoming a potential participant that could shape future hot narratives.
LPDfi uses options to address impermanent loss and simplify the work of CLAMM's LP, but ordinary DeFi users still face many challenges when using final products such as options trading or perpetual contract protection.
This may hinder the sustainable development trend of LPDfi, which may be more difficult than LSDfi.
LPDfi has the potential to simplify user experience, improve capital efficiency, and accelerate the emergence of new protocols. Although there are currently some challenges, solutions will emerge with the development of the DeFi community, ultimately improving the LPDfi model and strengthening its position in the financial field.
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