Another profitable strategy for investing in MEME is to increase returns when being a passive LP.

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 uses the latest examples to re-verify this method.

Prerequisite: In order to make this method work better, you need to layout memecoin early and recognize that a certain memecoin has a certain advantage 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 of the range slightly lower than the current price of Token (usually about 25% lower), and the upper limit of the range relatively higher (in this example, about 100 BUCK/SOL or about $2.5/BUCK). This setting can minimize the amount of SOL you need to deposit into LP, and as the price pumps, DCA (Dollar Cost Averaging) will gradually transition you from memecoin to SOL.

Let's talk about Impermanent Loss (IL) below: as stated by @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 let your position value be higher?

The only way this can happen is if one/both of the assets in your Token pair appreciate, resulting in Impermanent Loss. However, if you LP two assets that you don't mind holding, you're 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 Liquidity for a Token pair in the v3 range allows developers to profit/pay fees using fees while participating in Token pumps. It will directly adjust the value in the long term (depending on how the range is set).

To prove the effectiveness of this method, let's look at a simple example of BUCK, which the author divides into Initial Reserves, Continuous Impermanent Loss, Generated Fees, and Return on Investment.

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

Set the range from an upper limit of 100 BUCK/SOL (about $2.5) to a lower limit of 8,500 BUCK/SOL (about $0.029), which is about 20% lower than the market price of approximately 6900 BUCK/SOL, to ensure that the Token price does not exceed the range if BUCK falls in the short term.

This represents about $4,000 worth of SOL and $30,000 worth of BUCK (related to Impermanent Loss calculation later).

10 hours later, extract LP and it produces:

· 29.3 SOL & 156,000 BUCK (fee)

· 25.1 SOL and 841,456 BUCK (LP)

A deposit of $34,000 generates a cost of about 88% of the daily cost within 10 hours, which is an absolutely incredible figure, even without compound interest, the APY reaches 32,120%.

In this case, Impermanent Loss has caused a loss of about 50,000 BUCK Tokens, which were replaced by 8 SOL Tokens. 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

· The total profit of LP = 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 in Token pairs that maintain prices roughly consistent with high volumes.

Even more crazy, further optimization can be done:

· 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 a drop after Tokenpump (no round-trip trading), you can drag your LP and rebalance the lower limit of the range to reach 20% of the current floor price again, so that you can pocket the SOL income you have DCA'd.

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

Original Article Link