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Kamino's liquidity vaults are an automated liquidity solution that allows users to earn yield on their crypto assets by providing liquidity to concentrated liquidity market makers (CLMMs).
A Kamino vault deploys liquidity into an underlying DEX pool, consisting of 2 tokens. When you deposit into a vault, you earn fees from trading volume. In other words, if you deposit into a pool with Asset X and Asset Y, any token swaps that utilize that pool will incur a small cost to the swapper. As a Kamino depositor, you earn from that swap fee.
CLMMs are exponentially more capital-efficient than traditional automated market makers (AMMs). However, this efficiency also adds complexity and users can rarely harness the full potential of providing concentrated liquidity due to:
- Price volatility and Increased risk of impermanent loss (IL)
- Inefficiently set ranges
- Manual range management
- Manually harvesting and redepositing fees/rewards
All of the above ultimately comes at the cost of effectiveness and convenience.
Kamino automates the entire LP process and optimizes capital efficiency & yields through:
- Automated position rebalancing
- Auto-compounding trading fees & additional incentives
- Auto-swap for single-sided deposits & withdrawals
Additionally, Kamino gives you a fungible kToken as a receipt for your deposit. This means that, after depositing into a Kamino vault, you can use your kToken in DeFi.
To fully appreciate the evolution that Kamino brings, you need to understand the value of concentrated liquidity market makers (CLMMs):