Decentralized finance, abbreviated as “DeFi,” is a subfield of finance that has been around for fewer than ten years but is only now beginning to gain traction. Within the past two years, DeFi has experienced explosive growth and innovation from all corners of the ecosystem. Furthermore, constant advancements have been made to the manner in which decentralized applications (dApps) provide services that are both superior and more effective with regard to the use of capital.
However, the DeFi community does not often move swiftly to absorb advances, and the introduction of the concentrated liquidity market maker (CLMM) is one of those capital-efficient advancements that the majority of users have turned their backs on. CLMMs make the trading of cryptocurrencies on a decentralized exchange (DEX) extremely efficient, but using them is an extremely difficult task.
In response to these concerns, Kamino Finance has begun operations on the Solana platform. By developing automated vaults that make the handling of high-tech CLMMs simpler, Kamino is simplifying one of the most capital-efficient instruments in the DeFi industry and making it easier than it has ever been.
Trading Conditions Were Challenging Before the CLMM Was Implemented
Before the CLMM was released, users often operated under the assumption that trading through a DEX would result in the loss of some capital due to price slippage. Because of their purchase, they received a less number of tokens than before because the price had increased. If they sold, not only did they receive fewer tokens, but the price also went down as a result of their deal.
This is due to the fact that the process for pricing trades in the traditional automated market maker (AMM), which was the piece of technology that powered the majority of DEX trading, was flawed. Because the AMM was so poor at delivering deep liquidity, traders were forced to accept lower prices for their trades than they had anticipated. Price discovery was one of the AMM’s strong points.
It was stated that the CLMM would put an end to this regime and provide LPs with an improved way for delivering liquidity. Therefore, concentrated liquidity appeared to be a circumstance in which all parties involved would benefit, including limited partners who could maximize their earnings and traders who could execute transactions without risking their capital.
The CLMM Was Not Able to Keep the LPs’ Hype Alive for Very Long.
It didn’t take long for limited partners to realize that they were on the losing end of the system because they couldn’t efficiently offer liquidity on a CLMM by themselves and that they were unable to do it on their own. After spending many years merely acting as a source of liquidity for AMMs, limited partners became confused when they were told they had to constantly rebalance their positions or risk suffering a loss of one hundred percent (IL).
Then, reports started emerging that the majority of LPs had lost money as a result of offering full liquidity. The fact that consumers were given an NFT as a deposit receipt rather than a fungible LP token when liquidity was supplied on a CLMM made matters even more difficult.
The receipt of NFTs marked the end of DeFi’s composability because it is extremely difficult, if not impossible, to deposit NFTs using any other DeFi protocol. Concentrated liquidity holdings cannot be used as collateral for a loan or to earn incentives in a yield farming scheme if composability is not present.
How Kamino Makes It Easier for Users to Get Started with CLMM Liquidity
CLMMs lured consumers in with the promise of many beneficial benefits but ultimately drove the majority of users away. Typically, DeFi encourages involvement from each side of the smart contract, including lenders for borrowers and LPs for trading. However, the CLMM scared away a lot of liquidity from LPs since they found them to be too difficult to use.
Kamino offers the DeFi community solutions to a significant number of the issues that CLMMs brought about. First and foremost, Kamino has implemented automated vaults that carry out all of the laborious tasks for concentrated liquidity LPs. This makes the process more capital-efficient than the CLMM that operates on its own.
The only thing that users are need to do is deposit their tokens on Kamino, and the vaults will help rebalance positions into better ranges for capturing fees. Additionally, Kamino will automatically compound fees and rewards to grow the balance of a position, and customers will receive an LP token known as a kToken as their receipt. This LP token may be used by users as collateral when they borrow money from Kamino.
Kamino has been developed by Defi experts and is now prepared for use.
LPs now have the ability to earn fees from concentrated liquidity and borrow USDH all at the same time thanks to kTokens. The Hubble Protocol, an experienced Solana project team that incubated Kamino to improve what was wrong with the CLMM’s user experience, uses USDH as its stablecoin.
Kamino, which was developed on Orca’s Whirlpools by some of Solana’s most experienced DeFi developers, is rapidly becoming the interface that many LPs choose to use while communicating with a CLMM. At the time this article was written, Kamino had a total value locked (TVL) of $2 million, which indicates that there are a great deal more tokens available to assist users in making capital-efficient trades.
There has never been a simpler time to provide focused liquidity. As a consequence of this, limited partners (LPs) will be pleased to earn fees from concentrated liquidity trading, and traders will be pleased to find that, after their transactions have been finalized, they have a greater quantity of tokens in their wallets than they would have had they used a conventional asset management mechanism (AMM).