Original author: @0x AndrewMoh
Original compilation: Biteye core contributor Crush
Original source: @BiteyeCN
The rapid growth of LPDfi has caused a stir, and it has been hailed as the next hot narrative after LSDfi.
All the information about LPDfi is in this article, I hope it will be helpful to you.
Table of contents
1. What is LPDfi?
2. What problems does LDPfi solve?
3. The first 6 items in the LPDfi narrative
4. Personal feelings
01 What is LPFi?
LPDfi (Liquidity Derivatives Finance) uses Uniswap V3 LP (CLAMM) to create financial derivatives in Perpetual DEX, options, and currency markets.
It helps liquidity providers earn higher fees by utilizing LP on Uniswap V3 more efficiently.
Advantages of LPDfi products:
For users: Experience the higher returns of liquidity mining by increasing token incentives, reducing the risk of impermanent losses, and simplifying the provision of centralized liquidity.
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 LP to unlock unprecedented returns. This is a new asset market.)
02 What problems does LDPfi solve?
The DEX market is vast. According to DeFiLlama data, the TVL of Uniswap alone has reached $3.26b, while the total TVL of all DEXs has exceeded $11.8b.
LPDfi mainly utilizes Uniswap, while other DEX protocols such as Curve, Balancer and Velodrome still have abundant resources waiting to be developed.
The potential of Uniswap V3 to reduce impermanent losses has not been maximized under the existing strategy.
While Uniswap V3 improves capital utilization, it also brings some liquidity problems.
For example, users need to constantly manually adjust LP positions to prevent impermanent losses, which is an extremely complex and time-consuming operation.
Additionally, many people are currently trying to protect their assets from volatility by purchasing options or futures contracts.
However, this approach is also ineffective and requires high costs to avoid the risk of impermanent losses.
But when LPDfi appears, users no longer have to deal with liquidity themselves.
They can optimize profits and protect assets by trusting LDPfi projects and protocols to automatically handle liquidity measures.
03 6 Recommended Projects for LPFi Narrative
@logarithm_fi
Logarithm, one of the more well-known projects in the LSDFI narrative, discovered that the current temporary loss prevention measures are not optimal for Uniswap V3.
The protocol allows users to:
- Earn unlimited LP fees, maximize liquidity returns, and minimize price risk with Uniswap V3.
- Hedge LPs risk of impermanent losses to ensure profits are maintained under all market conditions.
In addition to the above, there are also the following two functions:
Liquidity Shell: Maximize the profits of Logarithm users by rationally allocating liquid assets on the LPDfi platform.
Nautilus Vault: Use delta-neutral strategy adjustments and reasonable liquid asset allocation to maximize profits.
@LimitlessFi_
Limitless runs on the Uniswap V3 platform and provides participants with comprehensive solutions.
In addition, Limitless has taken steps to optimize the profits of Uniswap liquidity providers and address temporary impermanent losses.
KyberSwap
The third protocol to introduce is KyberSwap, which is a platform built on @KyberNetwork, a liquidity protocol that runs on the blockchain.
Its main goal is to provide trading at optimized prices by integrating multiple liquidity sources.
@dopex_io
Dopex is a project built around options trading, offering a range of products.
It is built on the Arbitrum ecosystem and plays the role of increasing liquidity for users, reducing risks, and increasing profits for option buyers.
Dopex uses a dual-token model:
- $DPX: Governance token used for voting and revenue sharing.
- $rDPX: a pledged certificate whose value increases over time.
Options sellers and liquidity providers can earn DPX and rDPX tokens by staking their assets.
Dopex V2 will integrate Uni v3 liquidity to create American options, thereby enabling the contract to be executed before expiration.
(Note: Hedging with options is one of Uniswap V3 LP’s common ways to manage impermanent losses.)
@Panoptic_xyz
Panoptic is an options trading protocol similar to #Dopex, but focused on Perps options.
Traders can trade long and short options with unlimited leverage of up to 10x, similar to going long or short on crypto assets.
Panoptic leverages Uniswap V3 LP to provide liquidity to options buyers and sellers.
By doing this, Panoptic earns a commission that can be shared simultaneously with borrowers of assets in the Panoptic pool (for LP on Uni V3).
@goodentrylabs
Good Entry is a position protection product designed to protect traders from liquidation during periods of significant or artificial market volatility.
It offers 10x leverage, is built on Uniswap V3, and utilizes an options-like mechanism.
When a user deposits on ezVault, the protocol optimally allocates their LP on Uniswap.
ezVaults limited partners act as option sellers, while traders act as option buyers at certain entry (strike) points.
In just 3 months, ezVault achieved the following results:
- 795 Supplies
- USD 1.3 million TVL
- 4 major vaults ($WETH, $WBTC, $ARB, $GMX)
04 Personal feelings
In the ever-evolving DeFi market, different components are beginning to produce innovations. Amid these developments and innovations, LPDfi is emerging as a potential player that could shape the hot narrative of the future.
The LPDfi project uses options to address impermanent losses and simplify CLAMMs LP work, but ordinary DeFi users still face many challenges when using end products such as options trading or perpetual contract protection.
This may hinder the sustainable development trend of LPDfi and may make it more difficult than LSDfi.
LPDfi has the potential to simplify user experience, improve capital efficiency, and accelerate emerging protocols. Although there are still some challenges, as the DeFi community develops, solutions will emerge, ultimately improving the LPDfi model and strengthening its position in the financial field.
