Another profit strategy in the Meme market is to enhance returns by being a passive LP.

Author: @jackmelnick_, Head of Berachain Decentralized Finance

Compilation: Felix, PANews

8 months ago, I wrote a post about the cost of LP. At that time, it didn't attract much attention. However, the number of views on the post tripled yesterday, so this article will use the latest example to revalidate this method.

Premise: In order for this method to work better, you need to layout memecoin as early as possible, recognize that a certain memecoin has certain advantages in the medium to long term, and has a large volume. This article uses BUCK Token as an example.

As mentioned in the previous post, you need to set a v3 range, with the lower limit of the range slightly lower than the current price of the Token (usually about 25% lower), and the upper limit relatively higher (in this example, about 100 BUCK/SOL or about $2.5/BUCK). This setting can minimize the amount of SOL you need to deposit into LP, and as the price pumps, DCA (Dollar Cost Averaging) will gradually transition you from memecoin to SOL.

Let's talk about Impermanent Loss (IL): Here's a quote from @AbishekFi:

IL is a tool, not a loss**......*Measuring the return of LP is a hot topic, but it actually depends on your preferences as a LP. Do you want asset A or asset B? Or are you willing to increase the value of your position?

The only way this can happen is if one or both of the assets in your Token pair appreciate, resulting in Impermanent Loss. However, if you provide liquidity for two assets that you don't mind holding, you're simply creating an on-chain DCA that incurs fees at the same time.

As mentioned by @shawmakesmagic, this could be a very valuable tool for Token developers, especially for AI agents with ongoing costs. Providing Liquidity for a Token in the v3 range allows developers to earn/pay fees while participating in Token pumps. It directly adjusts the value over the long term (depending on how the range is set).

To demonstrate the effectiveness of this approach, let's take a simple example of BUCK below, where the author divides it into initial reserves, ongoing Impermanent Loss, incurred expenses, and Return on Investment.

Yesterday created a BUCK/SOL LP, providing 17 SOL and 892,000 BUCK. The reason for doing this is that the Gamestop movement has wide appeal, Token rotation speed is fast, and the volatility and volume are extremely high.

Set the range from the upper limit of 100 BUCK/SOL (about $2.5) to the lower limit of 8,500 BUCK/SOL (about $0.029), about 20% lower than the market price of about 6900 BUCK/SOL, to ensure that the Token will not exceed the range if BUCK falls in the short term.

This represents approximately $4,000 worth of SOL and $30,000 worth of BUCK (related to Impermanent Loss calculations to be done later).

10 hours after extracting LP, it generated:

• 29.3 SOL and 156,000 BUCK (fees)
• 25.1 SOL and 841,456 BUCK (LP)

The $34,000 deposit generated a fee of approximately $12,500 within 10 hours, which is about 88% of the daily fee. This is an absolutely incredible number, even without compound interest, the APY reaches 32,120%.

In this case of Impermanent Loss, about 50,000 BUCK Tokens were lost, which were replaced by another 8 SOL, which is insignificant from the perspective of Impermanent Loss.

To clarify more clearly:

• Deposit (Total) = 17 SOL and 892,000 BUCK
• Withdrawal (Total) = 54.4 SOL and 997,000 BUCK
• Total profit of LP = 37.4 SOL and 105,000 BUCK

It is obvious that the Impermanent Loss generated by the pool is greatly offset by the fees generated by the volume. This is optimized in pairs of Tokens that roughly maintain prices with extremely high volume.

Even more crazy, it can be further optimized:

• Increase the fee level of LP from 1% to 2% because of deeper Liquidity and larger volume.
• Tighten the upper limit of the initial range to further concentrate Liquidity，and re-balance the range over time if the price pumps.
• If you want to avoid the price drop after Tokenpump (no round-trip trading), you can pull your LP and rebalance the lower limit of the range to reach 20% of the current bottom price again, so as to collect the SOL you have DCAed.

In the MEME market, there is a high demand for trading volatility and a low sensitivity to prices. Positioning oneself as a passive LP is an excellent strategy to maximize returns. This is especially true for Token pairs with longer holding periods and higher volumes, and considering users who are uncertain about holding SOL or MEME.

Related reading: In-depth discussion on two types of DEX mechanisms: How to solve the profit risk of LP?