8. Bid-Ask Liquidity Strategy Explained | Beginner DLMM Tutorial

DLMM Clan is an independent DeFi liquidity-provider education community for EVM chains — distinct from Meteora, which is a DLMM protocol on Solana. In this beginner tutorial, CryptoCroco opens a Bid-Ask shaped bid position live — the strategy he says has made him the most money. The key idea: a Bid-Ask shape allocates more liquidity the further it sits from the current price, so as the price falls you buy more of the token at better prices while earning increasing fees and reducing impermanent loss. He anchors the range to a previous low, keeps some ETH aside for gas, and executes the position — which stacks on top of an existing spot position to form a hybrid combination.

Intro: the Bid-Ask shaped bid position

Welcome to another video about dynamic liquidity market making. In today's video, I want to open a Bid-Ask shaped bid position with you. It sounds more complicated than it is, and I can assure you, over the past months, this strategy has made me the most money.

The material presented in this tutorial and accompanying presentation is intended for informational purposes only and should not be interpreted as financial advice. Any investment decisions or positions you take are solely at your own risk.

Let's get into it. A Bid-Ask shaped bid position.

Setting up on a live example

Now, what does this actually mean? We're going to discover this on a live example. Just in the last video, I opened a position on Bankr. I will use Bankr again as an example. Here, this is the open position of last video. Right now, I'm going to click this little toggle, then it's clear. I don't see my current position, and we kind of start with a clean slate.

I'm going to click Advanced again, and here I can see the liquidity shapes. And as I said in the intro, I want to open a Bid-Ask shaped position. So I click here on Bid-Ask, and here what you can already see is it chooses the position Bid-Ask, and it shows here in the graph how this position exactly looks like.

I'm going to click this away because I still want to keep some gas. This is always important, that you don't allocate all the liquidity you have into a bid position, because you end up not having any gas on the chain.

Why the Bid-Ask shape is so powerful

Now, what you can see already in this position is, in the Bid-Ask position, the further away you get from the price, the more liquidity you allocate. Now, why is this very powerful? It means that the further the price diverges, the higher your allocation. This reduces your impermanent loss, because you only buy the most tokens as price has already fallen further.

Now, this is very powerful because it allows you to buy into a token at a greater rate, the better the price gets for you. And all along the way, you're earning increased fees, because the further the price falls, the more liquidity you have allocated and the more fees you're earning while reducing your impermanent loss. So I find this extremely powerful. I have used this numerous times to get good entries, because in a combination, the fee earnings plus this shape will always give you a very good entry, at least in my experience.

Setting the range

Now, again, I can also click here. I want to open it to the previous low, not further, and try to catch, if the price goes down, try to catch more liquidity and more Bankr tokens.

Now, the shape is good, I'm happy with it. It's a Bid-Ask position, and it is a bid. That means as the price falls, the more of my ETH gets converted to Bankr tokens. This is called a bid position because I'm bidding with my ETH to buy Bankr.

Executing the position

Let's do this. Let's execute it. I'm going to click Provide Liquidity now to get here a good overview.

Liquidity is provided, and when I now click Active Position, I can see it already. Note, this is now a stacked position. I had a spot position down here before, and I stacked on top the bid position. This is a nice combination. In a later video, I will get more into stacked positions and how they can be a good hybrid model.

Join the DLMM Clan

I hope you enjoyed the content today, and if you'd like to become a liquidity provider yourself and do this more regularly, join me in the DLMM Clan, where we seek opportunities together and then LP them as a team. It's open for everyone. Link is in the description below. Looking forward to seeing you there. Bye.