Community,.
25 Aug 2023, 12:24
Community,
Yesterday quiz showcased that majority of participants did not understand liquidity distribution in a concentrated liquidity Model
Question:
Let us say you added MTRG-USDT concentrated liquidity on Izumi with Upper Price of MTRG = 3 USD and Lower Price of MTRG = 1 USD. Which of the below is true
Answer:
The correct answers is that in a concentrated liquidity model the liquidity distribution is 50:50 in USD value when;
Upper Price/ Current Price = Current Price/ Lower Price
3/ Current Price = Current Price/1
Current Price = Sq. rt (3) = 1.732
So when you are adding liquidity in Izumi with Upper Price = 3 and Lower Price = 1, you will require MTRG and USDT in equal proportion when the current price is 1.732
We have already seen that:
When MTRG = 1 USD, your liquidity position is all in MTRG
When MTRG = 3 USD, your liquidity position is all in USDT
Consequently,
When MTRG < 1.732 USD, your liquidity position will have more value in MTRG and less in USDT
When MTRG > 1.732 USD, your liquidity position will have more value in USDT and less in MTRG
Hope this helps you understand liquidity positioning in a concentrated model better!