Citizen DeFi Play: The Meteora Trade

Solana was perhaps the biggest beneficiary of President Donald Trump’s recent foray into memecoins, and its Meteora exchange has been at the center of the madness, processing billions of dollars in transactions each day as traders rush to acquire TRUMP.

Meteora received the honor of being the initial source of onchain liquidity for TRUMP tokens, a potent first-mover advantage that allowed it to amass over $750M in new deposits and triple total value-locked overnight!

Today, we dissect this rapidly growing tokenless exchange. 👇

🌠 The Meteora Basics

Meteora is available exclusively on the Solana network, meaning anyone who wishes to use the application must purchase some SOL for gas payments – $5 should be sufficient to cover hundreds of transactions. Once your Solana wallet is loaded with cryptocurrency, you’re ready to interact with Meteora!

Like many other onchain exchanges, Meteora is based around automated market maker (AMM) technology, a special type of smart contract pioneered by Ethereum exchange Uniswap that holds two different cryptocurrencies and enables anyone to permissionlessly swap between the tokens.

What differentiates Meteora from many of its competitors is its “Dynamic Liquidity Market Maker,” or DLMM, which gives users three automated liquidity deployment strategies they can choose between to customize how they provide liquidity.

With the “spot” liquidity distribution strategy, deposited liquidity is spread uniformly across selected prices, meanwhile, the “curve” liquidity strategy concentrates user liquidity heavily around a given price and the “bid-ask” liquidity strategy concentrates liquidity towards price range extremes.

To start earning yield with Meteora’s DLMM, users must first determine the token pair they wish to provide liquidity on before then selecting the pool they want to deposit into. One token pair can have an infinite number of Meteora pools, each of which can be designed with different “bin” sizes (i.e., the price ranges at which liquidity is active) and protocol fees.

After selecting their desired liquidity pool, Meteora users can click “Add Position” to open a liquidity provider management interface, from which they can input how many tokens they want to deposit and easily “shape” their liquidity position.

Meteora’s interface allows users to define the price range they want to concentrate their liquidity within, meanwhile, its liquidity distribution strategies let them shape how liquidity is distributed throughout the range.

 To enhance yields for its depositors, Meteora has developed “Dynamic Vaults,” a solution that continually allocates single token deposits across various Solana lending platforms (primarily Kamino, Marginfi, and Solend) in an attempt to maximize yield while preventing excessive risk.

Combining Meteora’s DLMM with Dynamic Vaults produces the “Dynamic AMM,” a capital-efficient market maker that lends out inactive liquidity (i.e., tokens outside of the in-range price bin that are not being used to facilitate swaps), enabling liquidity providers to boost swap fee yields with additional lending income.

M3M3, the most recently deployed product from the Meteora team, departs from the exchange’s liquidity provider roots and ventures into the memecoin sector. It is a token launchpad that incentivizes memecoin staking by distributing yield from permanently locked liquidity to M3M3 users who stake their memecoins.

Meteora does not currently have a native token, but in late 2023, the exchange promised that 10% of the MET token supply would be allocated to liquidity providers prior to an eventual token launch. Considering the expansion in Meteora’s product line since this time, it is likely that interactions with other products will be included in the eligibility criteria for this distribution.

 🧐 Advanced Applications

Although Meteora attempts to make liquidity provisioning easier through automated liquidity deployment strategies and a user-friendly interface, as with any other AMM, users must actively manage their positions.

While setting wider LP price ranges lessens the need to actively manage a position, it reduces the concentration of supplied liquidity, diminishing the amount of yield that can be earned from end-user swapping activities. Similarly, while using larger bin sizes increases the price range a given bucket of liquidity is active within, it results in less concentrated liquidity and can lead to greater impermanent loss.

Eventual MET airdrop rewards should provide additional yield for liquidity providers, but dollar gains are never guaranteed in crypto; succeeding as a liquidity provider on Meteora requires sound decisions and a basic understanding of automated market maker principles.

Visit Meteora’s free DLMM bootcamp to become a liquidity provider pro in two days!