Advantages and Risks of Full Range vs. Custom Price Range in Sidra DEX

Providing liquidity on Sidra DEX follows the Automated Market Maker (AMM) model, similar to Uniswap V3, allowing users to choose between Full Range or Custom Price Range. Each strategy has different advantages and risks that should be understood before providing liquidity.

1. Full Range: Advantages and Risks

✅ Advantages:

Always Active → Liquidity remains available at all price levels, ensuring assets are always used in transactions.
No Monitoring Required → No need to adjust the price range periodically.
Beginner-Friendly → Simpler, as it does not require active price adjustments.

⚠️ Risks:

High Impermanent Loss → The wider the price range, the higher the risk of asset value deviation when withdrawing liquidity.
Lower Trading Fees → Since liquidity is spread across all prices, the fee income per unit of liquidity is lower.
Less Optimal for Stable Markets → If the token price remains relatively stable, Full Range may be less profitable than Custom Range.

2. Custom Price Range: Advantages and Risks

✅ Advantages:

Higher Trading Fee Earnings → Liquidity is concentrated within a specific range, increasing the chance of earning higher fees.
Lower Impermanent Loss → If the price stays within the chosen range, the difference in asset value when withdrawing liquidity is minimized.
More Efficient for Stable Markets → Ideal for assets that move within a predictable price range without extreme fluctuations.

⚠️ Risks:

Liquidity Can Become Inactive → If the price moves outside the range, the assets won’t be used for transactions and won’t earn trading fees.
Liquidity May Convert to a Single Token → If the price moves too far, the entire liquidity position can shift to a single token (explained below).
Requires Active Monitoring → Periodic adjustments to the price range are needed to continue earning trading fees.

3. Mechanism of Converting to a Single Token

In Custom Range, if the price moves outside the selected range:

If the price drops below the range → All liquidity converts into the cheaper token.
If the price rises above the range → All liquidity converts into the more expensive token.
Result: Liquidity becomes inactive until the price returns to the specified range.

Example:

Suppose you provide liquidity for the EWM/SDA pair with a price range of 0.2943 SDA – 0.3597 SDA:
- If the price of EWM falls below 0.2943 SDA, your entire liquidity converts into EWM.
- If the price of EWM rises above 0.3597 SDA, your entire liquidity converts into SDA.

When the price is outside this range, your liquidity will not be used for trading until the price moves back within the range.

4. How to Calculate the Price Range

To determine a ±10% price range, use the following formulas:

Lower Bound = Current Price - (Current Price × 10%)
Upper Bound = Current Price + (Current Price × 10%)

Example Calculation for a 10% Range from EWM/SDA = 0.326997:

Lower Bound = 0.326997 - (0.326997 × 10%) = 0.2943 SDA
Upper Bound = 0.326997 + (0.326997 × 10%) = 0.3597 SDA

If you want a ±5% or ±20% range, simply replace 10% in the calculation.

Conclusion: Which Strategy to Choose?

Full Range → Suitable for users who want convenience without monitoring, but with a higher risk of impermanent loss and lower fee income.
Custom Range → More optimal for users looking to maximize fees and reduce impermanent loss, but requires active price monitoring.

If you prefer a more stable and efficient strategy, Custom Range with periodic monitoring is recommended. However, if you want a hassle-free option without frequent adjustments, Full Range might be more practical.

Hopefully, this article helps you understand liquidity strategies on Sidra DEX!