Understanding Liquidity Providing Strategies in DeFi

Liquidity providing (LP) is a crucial aspect of decentralized finance (DeFi), allowing users to earn rewards by providing liquidity to trading pairs on decentralized exchanges. The tweet thread by DeRekt | HawkFi.ag 📊 offers an oversimplified guide on finding LP opportunities, focusing on two distinct strategies: High Frequency Liquidity (HFL) and Multiday Cook Up (MCU). Let's dive into these strategies and how they can be executed using tools like Jup Pro and HawkFi.

What is High Frequency Liquidity (HFL)?

HFL is a fast-paced, high-risk, high-reward strategy designed for aggressive fee farming. Here's how it works:

• Tight Ranges: LP in super tight ranges, typically 5–10 bins, to capture fees from high-volume trading.
• Frequent Rebalancing: Rebalance every minute without swapping, ensuring your position remains optimal for fee collection.
• Short Holding Period: Positions are usually held for hours to 1–2 days maximum.

This strategy is ideal for tokens with fresh inflow and hype, often found on Jup Pro Launchpads. However, it comes with significant risk due to the volatility and short-term nature of the trades.

How to Spot HFL Candidates

To identify potential HFL opportunities, follow these steps:

1. Check Jup Pro Launchpads: Look for runners with recent launches and high trading volume.
2. Analyze Recent Price Dips: Deploy your LP position near a recent price dip within the 7 to 11 bin range.
3. Enable Autocompound: Keep your position fresh by enabling autocompound.
4. Set Stop Loss: Optionally, set a stop loss to mitigate risk.

What is Multiday Cook Up (MCU)?

MCU is a more patient, conviction-based approach to LPing, suitable for medium to long-term compounding:

• Local Bottom Deployment: Enter positions near a local bottom to maximize potential gains.
• Directional Rebalance: Use an "up only" rebalance strategy with swapping enabled.
• Longer Holding Period: Positions can be held for days or even weeks, depending on your conviction in the token.

This strategy is best for tokens you believe in, allowing you to earn from both price appreciation and fee rewards.

How to Discover MCU Plays

To find MCU opportunities, consider the following:

1. Jup Pro Launchpads Leaderboard: Focus on the top 5 tokens from leading launchpads by market share.
2. Sort by 24h Volume: Identify tokens with consistent volume flow.
3. Deploy at Dips: Enter positions during local price dips.
4. Configure Autorebalance: Set up "up only" autorebalance with a cooldown of 1 minute to 1 hour.
5. Enable Autocompound: Ensure your position compounds over time.

A Simplified Recap of HFL vs. MCU

Here's a quick comparison to help you choose the right strategy:

Aspect	HFL (High Frequency Liquidity)	MCU (Multiday Cook Up)
Time Horizon	Hours to 1–2 days	Days to weeks
Risk Level	High	Moderate
Rebalance Frequency	Every 1 minute, swapless	Up only, with swapping, 1min to 1hr cooldown
Ideal Candidates	Fresh inflows, high-volume tokens	Tokens with strong conviction, consistent volume
Tools	Jup Pro Launchpads, HawkFi for automation	Jup Pro Leaderboard, HawkFi for automation

Personalization and Further Reading

While this guide provides a solid foundation, remember that strategies can be mixed and matched based on your risk tolerance and market conditions. For a deeper dive into HFL and MCU, including automation setups and case studies, check out the official cookbook at HawkFi Docs.

Disclaimer

This thread is for educational purposes only and not financial advice. HFL and MCU are experimental LP strategies. Always do your own research (DYOR) and understand the risks involved in liquidity providing.

By understanding these strategies and leveraging tools like Jup Pro and HawkFi, you can enhance your LP game and potentially increase your yields in the DeFi space.