CLMMs and Kamino

CLMMs have changed the DEX landscape by solving the issues of inefficient liquidity.

Concentrated liquidity market makers (CLMMs) are the most recent innovation in automated market makers (AMMs) powering decentralized exchanges (DEXs).

This is a short intro answering "What are CLMMs?" For a comprehensive overview, read our article here.

The CLMM Innovation

The CLMM design was first introduced by Uniswap v3. CLMMs create deep liquidity for token pairs, and require far less capital to do so.

Instead of a traditional AMM pool, where your liquidity is spread to cover any price, in a CLMM pool your assets are "concentrated" within a custom-selected price range (e.g., $30-$40 for SOL-USDH). By doing this, more liquidity is available for trading, which reduces slippage for swaps.

Liquidity depth between 3 pools. The more the assets provided are concentrated, the more they will be used for trades. Source: Uniswap.

This also means liquidity providers (LPs) need to deposit fewer assets to earn the same returns as in a traditional AMM.

Pain Points of Concentrated Liquidity Market Makers

Studies have shown that many CLMM liquidity providers don't profit from their positions due to the complexities posed by this new technology. To earn returns on CLMM positions, LPs may need to rebalance their position regularly to be in the "perfect" price range. Which, for most users, is a difficult and/or labor-intensive task.

In addition, as every CLMM position has its own set of parameters (such as trading fees and price ranges), LP share tokens are no longer fungible. By receiving an NFT, composability with other protocols is eliminated.

Moreover, the trading fees a CLMM position earns cannot be automatically compounded, which means LPs need to manually claim and compound their returns.

The Solution: Kamino as a Liquidity Layer

Today, CLMMs are in line to become the future of on-chain spot trading - but they need an additional layer to increase their adoption. Kamino has built the infrastructure that can take CLMM-powered DEXs to the next level.

Kamino USDC-USDT Vault returns VS Orca USDC-USDT Whirlpool.

By creating automated management strategies, Kamino's liquidity vaults remove the complexity of maintaining a CLMM position.