In a recent Twitter thread, Guillaume Lambert, the founder of Panoptic, has warned against providing liquidity in UniV3, saying that liquidity providers(LPs) are losing millions per year. Lambert addressed concerns about potential losses and demystified the concepts of Impermanent Loss (IL), Loss-versus-rebalancing (LVR), Just-in-time (JIT) liquidity, and Miner Extractable Value (MEV). The Panoptic founder emphasized that understanding LPing as an options trading approach could lead to successful outcomes for retail-level LPs.
Lambert offers solutions to LPs
Lambert explained that IL is a type of gamma risk, which refers to the accelerating risk of assets converting away from their initial 50:50 ratio. To mitigate IL or gamma risk, he suggested LPs think like options traders and buy options to transform naked positions into spreads, keep track and neutralize delta and gamma and trade wide positions to limit pin risk.
He explained LVR is like continuous hedging of options, an optimal scenario that can be challenging due to gas and slippage issues. Lambert recommended retail LPs consider generating a diversified/low-beta portfolio and neutralizing the delta of the whole portfolio approximately once a day to tackle LVR.
The thread also explained that JIT liquidity involves significant single-tick liquidity for a single block to absorb a large incoming trade. Lambert likened this to selling a put option that expires quickly, where the premium received is the collected fees. While JIT liquidity might be challenging to solve, it remains a valid strategy to limit price impact for large orders.
While some argue that MEV exploits harm LPs, Lambert pointed out that LPs benefit from MEV-driven swaps as they generate fees, and constant CEX/DEX price alignment ensures up-to-date prices for LPs.
He also emphasized that LPing becomes more manageable when approached from an options trader’s perspective, and said he has been sharing his trades publicly to demonstrate the success potential for retail-level LPs. Lambert then acknowledged that IL, LVR, JIT, and MEV are important concerns but identified bad user experience, low capital efficiency, and a lack of risk management tooling as key challenges hindering retail adoption and limiting profitability on Automated Market Makers (AMMs) like Uniswap.
Lambert finished, saying that he and his team at Panoptic are working on solutions to address these issues and preparing for a gated launch to improve the overall experience for LPs. With these insights, retail LPs on UniV3 can make more informed decisions, potentially reducing losses and maximizing profits.