Another profitable strategy in the Meme market is to increase returns by being a passive LP.

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.

Author: @jackmelnick_, Head of Berachain Decentralized Finance

Compiled by: Felix, PANews

8 months ago, I wrote a post about LP costs, which didn't attract much follow at the time, but yesterday the post's reading volume tripled, so this article uses the latest examples to re-validate this method.

Prerequisite: In order for this method to work better, you need to lay out memecoin early and recognize that a certain memecoin has a certain advantage in the medium and long term, and the volume should be large. 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 below the current price of Token (usually around 25% lower), and the upper limit of the range relatively higher (this example selects about 100 BUCK/SOL or about $2.5/BUCK). This setting can minimize the amount of SOL you need to deposit into LP and gradually transition from memecoin to SOL as the price pumps through Dollar-Cost Averaging (DCA) investment.

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

"IL is a tool, not a loss... Measuring LP returns is a hot topic, but it actually depends on your preferences as an LP. Do you want asset A or asset B? Or are you willing to have your position valued higher?"

The only way this happens is if one / both assets in your Token appreciate, leading to Impermanent Loss. However, if you LP two assets you don't mind holding, you're just creating an on-chain DCA that incurs fees at the same time.

As mentioned by @shawmakesmagic, this may be a very valuable tool for Token developers, especially for AI agents with ongoing costs. Providing Liquidity for a Token pair in v3 range allows developers to profit/pay fees using the cost while participating in Token pump. It will directly adjust the value in the long term (depending on how the range is set).

To prove the effectiveness of this method, let's take a look at a simple example of BUCK. The author divides it into initial reserve, ongoing Impermanent Loss, generated fees, and Return on Investment.

Yesterday a BUCK/SOL LP was created, providing 17 SOL and 892,000 BUCK. The reason for doing so is the widespread appeal of the Gamestop movement, the fast token rotation speed, and the high volatility and volume.

Set the range from an upper limit of 100 BUCK/SOL (approximately $2.5) to a lower limit of 8,500 BUCK/SOL (approximately $0.029), about 20% lower than the market price of around 6,900 BUCK/SOL, to ensure that the Token pair does 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 later).

10 hours later, when the LP is withdrawn, it generates:

29.3 SOL and 156,000 BUCK (fees)

25.1 SOL and 841,456 BUCK (LP)

The $34,000 deposit generates approximately 88% of the daily fee within 10 hours, which is an absolutely incredible figure, even without compound interest, the APY reaches 32,120%.

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

In order to clarify more clearly:

Deposit (total) = 17 SOL and 892,000 BUCK

Withdrawal (Total) = 54.4 SOL and 997,000 BUCK

LP's total profit = 37.4 SOL and 105,000 BUCK

Obviously, the Impermanent Loss generated by the pool is greatly offset by the fees generated by the volume. This is optimized for Tokens that maintain a price roughly consistent with high volume.

What's even crazier is that it can be further optimized:

Increase the fee level of LP from 1% to 2% because the Liquidity is deeper and the volume is larger

Tighten the upper limit of the initial range to further concentrate Liquidity, if the price pump, re-balance the range over time

If you want to avoid a drop after the Token pump (no round-trip trading), you can pull your LP and re-balance the lower limit of the range to reach 20% of the current bottom price again, so as to pocket the SOL income you have already DCA.

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 for maximizing returns. This is especially true for Token pairs with long holding periods and large volumes, and considering users who are unsure whether to hold SOL or meme.