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

Author: @jackmelnick_, Berachain Decentralized Finance leader

Compiled by Felix, PANews

8 months ago, I wrote a post about the cost of LP, which did not attract too much follow at that time. However, the reading volume of the post tripled yesterday, so this article is using the latest examples to revalidate this method.

Prerequisite: In order for this method to work better, you need to layout memecoin as early as possible and recognize that a certain memecoin has certain advantages in the medium and long term, and the volume is 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 slightly below the current price of the Token (usually around 25% lower), and the upper limit relatively higher (this example chooses about 100 BUCK/SOL or about $2.5/BUCK). This setting minimizes the amount of SOL you need to deposit into LP and gradually transitions you from memecoin to SOL as the price pumps with DCA (Dollar-Cost Averaging) investing.

Let’s talk about Impermanent Loss (IL) below: This is 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 a higher value for your position?

The only way this can happen is if one/both assets in your Token pair appreciate, resulting in Impermanent Loss. However, if you LP two assets that you don’t mind holding, then you are simply 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 v3 range of Liquidity for a Token allows developers to profit from/paying for fees while participating in Token pump. It will directly adjust the value over 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 reserves, ongoing Impermanent Loss, generated fees, and Return on Investment.

Created a BUCK/SOL LP yesterday, providing 17 SOL and 892,000 BUCK. The reason for doing so is that the Gamestop movement has a wide appeal, with fast token rotation speed, high volatility, and volume.

Set the range from a maximum of 100 BUCK/SOL (approximately $2.5) to a minimum of 8,500 BUCK/SOL (approximately $0.029), about 20% lower than the market price of approximately 6900 BUCK/SOL, to ensure that Token will 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 calculation later).

Withdraw LP in 10 hours, it generates: 01928374656574839201

29.3 SOL and 156,000 BUCK (fees)

25.1 SOL and 841,456 BUCK (LP)

The $34,000 deposit generates approximately $12,500 in fees in 10 hours, which is about 88% of the daily fee. This is an absolutely incredible number, even without compound interest, the APY reaches 32,120%.

In this case, the Impermanent Loss has cost approximately 50,000 BUCK Token, which have been replaced by another 8 SOL. From the perspective of Impermanent Loss, these are negligible.

To clarify further:

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

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

Total profit of LP = 37.4 SOL and 105,000 BUCK

Obviously, the Impermanent Loss generated by the pool is largely 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 Liquidity is deeper, volume is larger

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

If you want to avoid the drop after Tokenpump (no round trip trading), you can pull your LP and rebalance the lower limit of the range to reach 20% of the current bottom price again, thus pocketing the SOL income you have already DCAed.

In the MEME market, there is a high demand for trading volatility and a very low sensitivity to price. Positioning oneself as a passive LP is an excellent strategy to maximize returns. This is especially true for Token pairs with long holding periods and high volume, taking into account users who are uncertain about holding SOL or MEME.

Related reading: In-depth exploration of two DEX mechanisms: How to solve the profit risk of LP?