Concentrated Liquidity with Leverage
Trading and Market Microstructure
2024-09-20 v1 Computational Finance
Abstract
Concentrated liquidity (CL) provisioning is a way how to improve the capital efficiency of Automated Market Makers (AMM). Allowing liquidity providers to use leverage is a step towards even higher capital efficiency. A number of Decentralized Finance (DeFi) protocols implement this technique in conjunction with overcollateralized lending. However, the properties of leveraged CL positions have not been formalized and are poorly understood in practice. This article describes the principles of a leveraged CL provisioning protocol, formally models the notions of margin level, assets, and debt, and proves that within this model, leveraged LP positions possess several properties that make them safe to use.
Keywords
Cite
@article{arxiv.2409.12803,
title = {Concentrated Liquidity with Leverage},
author = {Atis Elsts and Krešimir Klas},
journal= {arXiv preprint arXiv:2409.12803},
year = {2024}
}