beforeyouenter - CryptoLabs Research

Step 1

Choose Your Pool

Not all pools are created equal. Here's what to look for.

Pool Types

Stable/Stable Lower Risk

USDC/USDT, DAI/USDC — minimal IL since prices stay correlated.

Major/Stable Medium Risk

ETH/USDC, BTC/USDT — more volume, more fees, but IL when prices move.

Volatile/Volatile Higher Risk

ETH/ARB, SOL/BONK — highest fees but significant IL risk.

Fee Tiers (Uniswap V3)

0.01%Stablecoin pairs

Very tight spreads

0.05%Stable or correlated pairs

Most stable pools

0.3%Most common — ETH/USDC etc

Sweet spot ✓

1%Exotic/volatile pairs

High risk/reward

Before You Enter: Check These Metrics

💰

TVL

Higher = more liquidity, lower slippage. Look for $1M+ for majors.

📊

24h Volume

More volume = more fees. Dead pools don't pay.

⚡

Volume/TVL Ratio

Higher ratio = better fee efficiency. Target 0.1+ daily.

Step 2

Understand Impermanent Loss

IL is why most LPs lose money. You need to understand this before you enter.

When you LP, the pool automatically rebalances your tokens as prices change. You end up with more of the token that's dropping and less of the one pumping.

IL = the difference between what you'd have if you just held vs what you have as an LP.

Key insight: IL is only "impermanent" if prices return to your entry point. If they don't, it becomes very permanent.

📊

Calculate Your Exact IL

Use DeFi Buddy's IL Calculator to model different price scenarios with your exact position size and range settings.

Open IL Calculator

Step 3

Position Simulator

Watch how your position changes as price moves in real-time.

⟠

ETH / USDC

0.3% fee tier

● In Range

Current ETH Price

$3,245.00 ▲ +0.0%

Your Liquidity Range

Min: $2,800

Max: $3,600

Position Value

$10,000.00

+$0.00 (0%)

Fees Earned

$0.00

Earning ~$0.42/hr

Position Composition

1.54 ETH

5,000 USDC

Speed:

💡 What's Happening

You've deposited $10,000 into an ETH/USDC concentrated liquidity position. Your range is set from $2,800 to $3,600. As the price of ETH moves, watch how your position value, composition, and impermanent loss change in real-time.

Step 4

Set Your Range

Your range width determines your fees AND your risk. Choose wisely.

🎯 Tight Range (±5-15%)

✓ Higher fees (more capital efficiency)
✓ Can hit 100%+ APR in active pools
✗ Goes out of range quickly
✗ Requires frequent rebalancing
✗ Gas costs eat profits

Best for: Active managers, stable pairs, sideways markets

🌊 Wide Range (±20-50%)

✓ Stays in range longer
✓ Less management required
✓ Lower rebalancing costs
✗ Lower fee APR
✗ Still has IL risk

Best for: Less active LPs, volatile pairs, trending markets

Recommended Range by Pair Type

Pro tip: If you're not sure, start wider. You can always tighten later once you understand the pool's behavior.

🎯

Simulate Your Position

Test different ranges and see how your position performs under various price scenarios before committing real capital.

Open Position Simulator

Step 5

Hedge Your Position

Turn IL into a known cost instead of an unknown risk.

Why Hedge?

When you LP, you're essentially short volatility — big price moves hurt you. Hedging offsets this exposure so you can collect fees without worrying about direction.

Without Hedge

Price dumps → Your LP value drops

You're stuck holding more of the falling asset

You risk locking in IL if you exit

With Hedge

Price dumps → Hedge profits offset losses

Your short position gains as price falls

You collect fees (while protecting the downside)

How to Hedge

📊 Perpetual Short Most Common

Short the volatile asset on a perps exchange to offset your long exposure from the LP. When ETH dumps, your short profits — offsetting the IL from your LP position.

Platforms: GMX, Hyperliquid

🛡️

Calculate Your Hedge

DeFi Buddy's hedge calculator tells you exactly how much to short based on your LP position and range.

Open Hedge Calculator

Step 6

Pre-Entry Checklist

Don't skip these.

0 of 7 checks complete

Step 7

Execute Your Position

Step-by-step execution flow.

Choose your pool & fee tier

0.3% is usually best for ETH/USDC. Check volume first.

Set your price range

Start with ±30% for ETH/USDC. Tighter = more fees but more management.

Open your hedge (if using)

Use the hedge calculator to determine short size. Open before or after LP.

Deposit liquidity

Approve tokens and confirm. Deposit ratio depends on current price vs your range.

Set alerts & monitor

Get notified when price approaches your range edges.

⚠️ Common Mistakes

Setting ranges too tight and going out of range immediately
Rebalancing too often (gas costs kill profits)
Not hedging and getting wrecked by IL on big moves
Forgetting you earn ZERO fees when out of range
Chasing high APR without understanding the risks

Step 8

Monitor Weekly

Set a reminder. Check these every week.

📈

Fees vs IL

Are fees earned > IL? This is the only number that matters.

🎯

Range Status

Are you in range? If not, you're earning nothing.

🛡️

Hedge Health

Is your hedge sized correctly? Funding rate eating profits?

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Pool Health

Volume still good? TVL stable? Any protocol news?

When to Rebalance

✓ Price returning to center — wait, no action needed

⚡ Price at range edge — prepare to rebalance if trend continues

⚠️ Out of range 24h+ — evaluate: close or wait for return?

Step 9

Define Your Exit

Pre-commit to rules before emotions take over.

Exit if IL exceeds (%)

Exit if fees earned reach ($)

Exit if out of range for (days)

Max exposure per pool (%)

• If IL exceeds __%, I exit.
• If fees reach $__, I take profits.
• If out of range for __ days, I evaluate closing.
• Max exposure = __% per pool.

Ready to LP smarter?

The goal isn't max APR — it's sustainable yield with managed risk.

Use DeFi Buddy 📊 IL Calculator 🛡️ Hedge Calculator 📺 YouTube