Market Making Diaries: EP1 - Bubee
The man, the myth, the Bubee.
Bubee dove into the realm of DeFi just over two and a half years ago, drawn into the dynamic world of crypto by a close confidant. His venture into market-making commenced shortly after the launch of Liquidity Book in November 2022. Predominantly active on Avalanche, Bubee had no previous experience managing liquidity on a concentrated liquidity Automated Market Maker (AMM).
Nonetheless, being an enthusiastic yield farmer, Bubee promptly found his footing. He adapted and has since flourished, reaping the benefits of the Liquidity Book Rewards Program. Simultaneously, he's been documenting his journey as a market maker, creating a highly accessible content series that documents his step by step strategic decisions as a retail market maker.
Q: Talk me through your daily routine as a retail market maker?
My current routine is this:
Morning: I get up at 5.15am and whilst I’m sipping a cup of coffee, I check all of my positions. If necessary (it usually is), I make adjustments based on what had happened in the market during my sleep hours.
Throughout the day: I regularly check my positions and keep updated with news. I am currently building a business, self-educating and also creating content on the side, so i’m often on or by my desk and able to react quickly. This is very helpful as it means I can really maximise the usage of my capital by being able to quickly adapt my positions thanks to Liquidity Book’s versatility.
Evening: Before getting to bed, at around 10pm, I check the position for the last time and try to create possible scenarios as to what could happen while I’m sleeping. I adjust accordingly based on my expectations.
Q: What are your market making strategies on Liquidity Book?
It’s simple: keeping my liquidity next the the active bin at all times. I usually operate with a single-token (entry/exit). That means I never rebalance my position, just move it with the active bin and get it swapped forth and back. I tend to LP in a narrow position, sometimes deploying my liquidity in just 1 to 3 bins. But it’s all dictated by the market that I adapt to.
Bubee keeps his liquidity highly concentrated, capturing micro-level movements in prices and adapting his positions using small granular changes, this is essentially scalping in a Liquidity Pool. Thanks to Liquidity Books fungible architecture, it’s possible to deploy and manage this type of strategy, but be warned, this is a high risk, high reward play.
Q: How many positions do you typically manage at once?
In my experience, focusing on one key market is vital. Therefore I typically only manage one position, but at times I may increase this to two or even three. I guess it can work if one is in a volatile pool and the other is in a stable pool for example. Nevertheless, I am more comfortable to get the most out of one position.
Q: Can you describe an instance when a sudden market event (like a flash crash or sudden price surge) affected your market making activities? How did you manage it?
Yes, I can clearly remember. It happened during the early days of the Liquidity Book. I was inexperienced at that time. I was LPing my $AVAX bag when the Avalanche AWS announcement came in, out of the blue. The price of $AVAX surged in an instant. I was watching a movie with my wife. I saw the announcement on Twitter but I didn’t take action immediately, a painful lesson. Later, I realised that my $AVAX was sold low. I ended up pulling out the now converted USDC and called it a day. Then, instead of trying to recover the loss, I think I moved pools and provided liquidity elsewhere. I made the impermanent loss permanent.
Q: Do you use any key tools or services to help inform your market making strategies?
The most important aspect about managing a liquidity position is having a great grasp of the actual market. Understanding natural movements in the underlying tokens is a key advantage when positioning liquidity. Meaning, knowing what to expect of each coin and token, the price levels, token unlocks, general sentiment. In other words, if you track $AVAX for months, you’ll know how it behaves on a day to day basis, what future catalyst there may be and so on. All of this knowledge helps to inform strategic decisions.
I remember providing liquidity on Arbitrum into a new pool. I had 0 idea about the underlying token, it was all new to me. I didn’t know how it moves during the day and it took me a few days to feel comfortable working with it.
Q: Whats been your best win and your worst loss?
Biggest Win
3rd place in Epoch 5 in the $BTC.b - $BNB pool. I made $1000 on $2200. Joe rewards are great.
Biggest Loss
An undisclosed loss with $AVAX … An impermanent loss was made permanent.
Q: Reflecting on your journey as a market maker, if you had the chance to travel back in time, what key piece of advice would you offer to your past self?
Do not LP with assets that you wish not to lose.
Q: Last words of inspiration
There is no “the” strategy. The best strategy is the one that adapts to the market conditions. I think that most newbie LPs overthink it and others don’t have the necessary basic education before going all in. Education is the only key to avoid dire mistakes.
The job is simple: keep your position busy (meaning that you’re always in range) and avoid selling low and buying high. This job requires active management, constant attention to what’s going on in the market and the ability to make changes when needs be.
Unlock the power of DeFi, with Trader Joe
It’s okay to be daunted by market making in DeFi. Remember when you first got into Web3? That felt pretty confusing, but look at you now! If you’ve found your way to this article you’re definitely more resilient than you think! As Bubee demonstrates, taking your approach slowly and learning as you go is the most direct path to a rewarding market-making experience. Remember to never take on more risk than you can afford and if you’re unsure - hop into Trader Joe’s Discord and speak to one of our many moderators.
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