Original title: Memecoin LP II: How I Learned to Stop Worrying and Love IL

Original author: Cap'n Jack Bearow, Head of Berachain Decentralized Finance

Original compilation: Felix, PANews

8 months ago, I wrote a post about LP costs, which didn't attract much attention at the time, but yesterday the post's views tripled, so this article will re-validate this method with the latest examples.

Prerequisite: In order to make this method work better, you need to layout memecoin as early as possible and recognize that a certain memecoin has a certain advantage in the medium and long term, and the volume must be large. This article uses the BUCK Token as an example.

As mentioned in the previous post, you need to set a v3 range, with the lower limit of the range slightly lower than the current price of the Token (usually about 25% lower) and the upper limit relatively higher (this article selects about 100 BUCK/SOL or about $2.5/BUCK as an example). This setting can minimize the amount of SOL you have to deposit into LP, and as the price pumps, DCA (Dollar-Cost Averaging) will gradually move you from memecoin to SOL.

Let's talk about Impermanent Loss (IL) below: Here 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/two assets in your Token appreciate, resulting in Impermanent Loss. However, if you LP two assets that you don't mind holding, then you're just 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 Liquidity in the v3 range for a Token allows developers to make profits/pay fees using costs while participating in Token pump. It will directly adjust the value in the long term (depending on how the range is set).

To demonstrate the effectiveness of this method, let's take a look at a simple example of BUCK, which the author divides into initial reserves, ongoing Impermanent Loss, incurred fees, and Return on Investment.

Yesterday created a BUCK/SOL LP, providing 17 SOL and 892,000 BUCK. The reason for doing so is that the Gamestop movement has broad appeal, Token rotates quickly, and has high volatility and volume.

Set the range from a maximum of 100 BUCK/SOL (about $2.5) to a minimum of 8,500 BUCK/SOL ($0.029), which is about 20% lower than the market price of approximately 6,900 BUCK/SOL, ensuring that the Token pair does 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 after 10 hours, it generates: 01928374656574839201

• 29.3 SOL and 156,000 BUCK (fee)
• 25.1 SOL and 841, 456 BUCK (LP)

The $34,000 deposit generates a fee of approximately 12,500 USD within 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 of Impermanent Loss, about 50,000 BUCK Token were lost, which were replaced by another 8 SOL. From the perspective of Impermanent Loss, these are negligible.

To clarify more clearly:

• Deposit (Total) = 17 SOL and 892,000 BUCK
• Extraction (Total) = 54.4 SOL and 997,000 BUCK
• LP total profit = 37.4 SOL and 105,000 BUCK

Obviously, the Impermanent Loss generated by the pool is greatly offset by the fees generated by the volume. This is optimized for Tokens that maintain a price roughly consistent with high volume.

Even more crazy, 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, rebalancing the range over time if the price is pumped
• If you want to avoid a 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, so that you can pocket the SOL income you have DCA-ed.

In the meme market, there is a high demand for trading volatility and a low sensitivity to price. Positioning oneself as a passive LP is an excellent strategy for maximizing returns. This is especially true for Token pairs with longer holding periods and higher volumes, and considering users who are uncertain about holding SOL or meme.

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