Add Liquidity Overview

What is Adding Liquidity?

In DLMM, adding liquidity means:

  • Depositing token pairs into specific price bins

  • Receiving a position NFT that tracks your share

  • Earning fees from trades that occur in your bins

  • Managing liquidity across discrete price levels

Core Concepts

Position NFTs

Your liquidity is represented by a Position NFT that:

  • Tracks your share across multiple bins

  • Accumulates trading fees

  • Can be transferred or sold

  • Allows partial withdrawals

Bins and Price Ranges

  • Each bin represents a specific price level

  • You choose which bins to add liquidity to

  • Only the "active bin" facilitates trades

  • Price moves by jumping between bins

Distribution Strategies

How you spread liquidity across bins:

  • SPOT: Uniform distribution

  • CURVE: Concentrated around current price

  • BID-ASK: Weighted away from center

  • CUSTOM: Manual bin selection

The Workflow

1. Choose Your Pair

const pair = await sdk.Pair.getPair(pairAddress);
const currentPrice = calculatePrice(pair.parameters.active_id);

2. Select Distribution Strategy

Decide how to allocate liquidity:

  • Tight range for higher fee capture

  • Wide range for consistent coverage

  • Strategic placement for limit orders

3. Calculate Token Amounts

DLMM requires specific ratios per bin:

  • Bins below active: 100% token Y

  • Active bin: Mixed ratio

  • Bins above active: 100% token X

4. Execute Transaction

Two options available:

  • Create new position + add liquidity

  • Add to existing position

Key Considerations

Capital Efficiency

  • Narrower range = higher fee share

  • Wider range = more consistent fees

  • Active bin earns most fees

Impermanent Loss

  • Occurs when price moves from entry

  • Wider ranges reduce IL risk

  • Consider correlation of assets

Rebalancing Needs

  • Narrow ranges need more management

  • Wide ranges are more passive

  • Monitor active bin position

Best Practices

  • Start Small: Test with small amounts first

  • Monitor Performance: Track which bins earn most fees

  • Consider Volatility: Adjust range based on pair behavior

  • Plan Exit: Know your withdrawal strategy

Common Patterns

Passive Income Strategy

  • Use SPOT distribution

  • Wide range (50-100 bins)

  • Minimal management needed

Active Trading Strategy

  • Use CURVE distribution

  • Tight range (10-20 bins)

  • Rebalance frequently

Limit Order Strategy

  • Use CUSTOM distribution

  • Single bin placement

  • Acts like a limit order

Next Steps

Ready to add liquidity? Choose your approach:

  1. Quick Start: Add to New Position - One transaction setup

  2. Existing Position: Add to Existing Position - Increase current liquidity

  3. Learn Distributions: Explore SPOT, CURVE, or BID-ASK

Related Topics

PreviousAdd LiquidityNextAdd to New Position

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