Intro
Crypto investment strategies have been a popular way to earn passive income for several years now. Now the market is bigger than ever, so both new and experienced investors can choose the right option for themselves. Among all the variety that exists in 2024, liquidity management is one of the most popular investment strategies.
Liquidity manager protocols use smart contracts and algorithms necessary to manage liquidity in DeFi protocols, DEXs and liquidity pools.
In this way, liquidity managers not only optimize the efficiency and stability of liquidity provision on these platforms, but also generate users rewards for providing assets. Now there are a huge number of protocols that manage the investment assets of users, bringing them maximum profit. Deposited funds are being moved between different pools, which are currently capable of generating higher returns.
By depositing their cryptocurrency into liquidity manager protocols, investors receive a share of the fees or interest generated by their assets.
Today's article from Notum will introduce you to such a liquidity manager protocol as Arrakis Finance. We will look at its main properties, advantages, risks, and also pay attention to Arrakis' popular investment strategies in 2024.
Arrakis Finance: The Essentials
- TVL: $170,650,000
- Average APY: 5.20%
- Risk Level: Low-Medium
- Blockchains: Ethereum, Polygon, Arbitrum, Optimism
- Foundation Date: 2021
Arrakis Finance is a decentralized platform and a liquidity management protocol that allows users to run complex algorithmic strategies on Uniswap V3. The uniqueness of the platform lies in its ability to implement market-making strategies due to concentrated Liquidity AMMs, that were previously available only on centralized exchanges.
The advantage of the platform is Arrakis Vaults, which are used by investors to automatically and efficiently manage their liquidity.
However, these efficiency improvements, significantly superior to the old AMMs, have had a negative impact on liquidity providers. An attempt to fully utilize the potential of concentrated liquidity led to investors facing overhead and other major difficulties. This is how the idea of creating a protocol with a reliable AMM structure and strategies came about.
Arrakis can now be used by liquidity providers to create crypto asset markets that are superior to centralized exchanges in efficiency, without active involvement in the process.
Subsequently, Arrakis, which started as part of the Gelato Network, began to receive significant support from the crypto community, and in particular from several web3 protocols with similar aspirations. Thanks to this, the project was able to separate and work completely and independently, which continues to this day.
«In December 2022, Arrakis Finance raised USD 4 million in seed funding from Accel, Polygon Ventures, Robot Ventures, and Uniswap Labs Ventures»
Arrakis Finance itself describes its mission as creating a robust infrastructure and market making strategies on Uniswap V3. Its main goals are to democratize market making, so that subsequently decentralized exchanges can be used as platforms for trading all kinds of assets, and not just cryptocurrencies.
Interesting fact: the name of the project is inspired by Frank Herbert’s Dune Universe, where Arrakis is a dangerous desert planet full of riches.
The creators of the platform identify the planet Arrakis with the equally harsh, but profitable and full of potential crypto world.
Arrakis Finance V1/V2
During its existence, the project had two versions - Arrakis V1 and Arrakis V2, each of which had its own distinctive features:
Arrakis V1. The first version of the protocol used Arrakis LP Vaults V1 technology, which made liquidity management possible. The benefit of these vaults was the ability to automatically manage liquidity on DEXs with concentrated liquidity.
V1 Vaults included a large number of features such as ERC20 wrapper for Uniswap V3 LPs, deployment of vaults with any price caps on any Uniswap V3 pair, and much more. In other words, V1 opened up a large number of new opportunities from cross-AMM positions to cross-chain strategies.
Arrakis V2. The updated version provided users with new functions such as creating and automatically executing complex trading strategies on Uniswap V3. Among other distinctive features of Arrakis V2 are multiple concentrated liquidity positions, liquidity provision in different fee tiered pools, cross protocol rebalancing and much more.
In addition, Arrakis V2 is highly composable, allowing it to easily integrate new vaults into DeFi.
Why Invest in Liquidity Management with Arrakis?
Liquidity management is an investment strategy with many advantages, since automated processes implemented using smart contracts allow liquidity to be placed between the most profitable liquidity pools. Arrakis, in turn, is a platform that makes this process the most comfortable and has a number of unique features:
- Liquidity management options. As known, Arrakis allows users to utilize actively managed concentrated liquidity on Uniswap v3 and offers to choose exactly how liquidity will be stored. Liquidity providers can use managed vaults managed by professional market makers using complex strategies; or self managed vaults, used by single entities and suitable only for advanced LPs. The third option is trustless vaults, using smart contracts with a specific strategy as a manager, “which enables LPs to have trustless, autonomously managed on-chain strategies, similar to a Curve v2 like model” - Arrakis.
- Simple withdrawals. Arrakis Finance gives users complete control over their funds on Uniswap v3. Thus, regardless of the chosen option of liquidity management, investors can withdraw their assets at any time.
- Risk management. As an automated liquidity manager, Arrakis moves assets from one liquidity pool to another, uses automated execution and minimizes impermanent loss, which in turn leads to a significant reduction in risks.
- Automated decision-making. Arrakis liquidity manager with automated execution processes large volumes of data in real time. Thus, the platform uses various systems to make informed decisions on liquidity management, taking into account factors affecting the market.
- Trust of leading DeFi protocols. Arrakis has earned a fairly good and solid reputation in the crypto space and is already used by many leading DeFi protocols as a protocol’s automated liquidity management system. The most popular of them include MarkerDAO, IndexCoop, Optimism.io, FraxFinance, Stargate, Lido Finance, Uniswap and others.
Other distinctive features of Arrakis Finance include DeFi composability, multiple liquidity positions in a single Uniswap V3 pool and liquidity provision across multiple fee tiers under one position.
Investment Strategies | Arrakis Finance & Notum
Currently, Arrakis Finance offers liquidity providers a large number of different liquidity pools on four different networks - Ethereum, Polygon, Arbitrum and Optimism
Tip: To enter any suitable strategy, you can use Notum App to easily swap tokens in one click.
Source: Notum
Today we will look at two popular strategies that allow users to receive rewards from liquidity management using Arrakis Finace:
wstETH / WETH on Optimism APR – 8.00%, TVL – $132.11K
This investment strategy on Optimism allows users to deposit their wETH and wstETH into Arrakis V2 Vaults to receive rewards. If you own one of these assets and want to earn passive income, then wstETH / WETH will bring you from 7.5 to 8.5% APR on average.
Source: Arrakis App
wstETH / USDC on Ethereum APR – $189.86K, TVL – 118.43%
If you are looking for one of the most profitable strategies on Arrakis Finance, then wstETH / USDC on Ethereum network is what you need. By investing assets in this liquidity pool, users have the opportunity to receive rewards from 116 to 120% APR. This strategy uses limit orders and algorithmic rebalancing, making it a good choice for investors seeking for passive income.
Source: Arrakis App
Arrakis Finance: Risks and Disadvantages
While liquidity manages play an important role in the world of decentralized finance by increasing the efficiency and liquidity of DEXs and other DeFi platforms, they are still not without risks that are worth paying attention to. Arrakis Finance, despite its popularity, still has some problems:
- Smart contract risks. Since Arrakis Finance operates on smart contracts, it also takes on the main risks associated with them. They include code vulnerabilities, bugs and inaccuracies that can lead to financial losses.
- Market volatility. As is known, cryptocurrency is a fairly volatile asset, which entails risks associated with changes in its value. Despite the fact that liquidity management platforms often mix assets into different pools to maximize profitability, they still cannot influence the volatility of the crypto market and protect the user from potential losses.
- Impermanent loss. Due to dynamic changes in asset prices in the liquidity pool, users can also experience permanent loss. Because asset prices deviate from the original ratio when providing liquidity, management platforms can result in lower returns than simply holding assets.
It is important to note that despite the potential risks, Arrakis V2 smart contracts have been verified by several major auditors - Watchpug, Statesmind, and Sherlock, which indicates the proper level of platform’s security.
Notum’s Verdict
Arrakis Finance is one of the most popular liquidity management platforms, used by many popular protocols such as Uniswap, MarkerDAO, IndexCoop and many others. It has a low-to-medium risk level and does not require active user involvement, which can be an advantage for novice investors.
By depositing assets into the platform's vaults, users earn passive rewards from commissions and fees equivalent to their deposit. The advantage of Arrakis Finance is that the protocol independently moves investors’ assets to more profitable pools to obtain maximum rewards. Other advantages of the platform include various liquidity management options, multiple concentrated liquidity positions, cross protocol rebalancing and much more.
Despite the potential risks associated with market volatility and smart contract vulnerabilities, Arrakis Finance is a reliable liquidity manager that makes a major contribution to the development of the DeFi ecosystem.
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Disclaimer: Notum does not provide any investment, tax, legal, or accounting advice. This article is written for informational purposes only. Cryptocurrency is subject to market risk. Please do your own research and trade with caution.