What is Raydium CLMM?
Raydium CLMM (Concentrated Liquidity Market Maker) is a next-generation automated market maker (AMM) protocol launched by Raydium on Solana. Unlike traditional constant product market makers (CPMM), CLMM allows liquidity providers (LPs) to concentrate their capital within specific price ranges, significantly improving capital efficiency.
Core Advantages
- Improved Capital Efficiency: Capital utilization can be tens or even hundreds of times higher than traditional AMMs
- Higher Returns: Concentrated liquidity earns more fee income with the same trading volume
- Flexible Strategies: Customize price ranges based on market conditions to optimize returns
- Low Slippage Trading: Concentrated liquidity provides better price execution for traders
CLMM vs Traditional AMM: Key Differences
| Feature | Traditional AMM (CPMM) | CLMM |
|---|---|---|
| Liquidity Distribution | Evenly distributed from 0 to infinity | Concentrated in custom price range |
| Capital Efficiency | Low, most capital idle | Very high, capital fully utilized |
| Fee Income | Distributed evenly by liquidity share | Higher earnings in active range |
| Management Complexity | Simple, no active management needed | Requires regular price range adjustments |
| Impermanent Loss Risk | Relatively low | Higher within range, but controllable |
How to Provide Liquidity on Raydium CLMM
Step 1: Choose Trading Pair
First, select an appropriate trading pair. Beginners are recommended to start with:
- Stablecoin Pairs: Such as USDC/USDT, low price volatility, low risk
- Major Pairs: Such as SOL/USDC, good liquidity, high trading volume
- Other Asset Pairs: Such as TRUMP/SOL, high price volatility
Step 2: Determine Price Range
This is the most critical step in CLMM market making. Price range selection directly affects returns and risks. Proper price range setting is crucial:
Narrow Range Strategy
Price Range: ±5-10%
Advantages: Extremely high capital efficiency, maximized fee income
Risks: Price easily moves out of range, requires frequent adjustments
Suitable For: Stablecoin pairs, active managers
Medium Range Strategy
Price Range: ±20-30%
Advantages: Balanced returns and risks, moderate management frequency
Risks: Medium capital efficiency
Suitable For: Major pairs, general investors
Wide Range Strategy
Price Range: ±50% or more
Advantages: No frequent adjustments needed, lower risk
Risks: Low capital efficiency, limited returns
Suitable For: Volatile pairs, passive investors
Step 3: Calculate Capital Allocation
Based on the selected price range, the system automatically calculates the ratio of both tokens. Key points:
- When current price is at range center, token ratio is close to 50:50
- When current price is near lower bound, mainly hold base token
- When current price is near upper bound, mainly hold quote token
Raydium CLMM Liquidity Success Case
Scenario: Providing liquidity in SOL/USDC pool
- Current Price: 100 USDC/SOL
- Selected Range: 90-110 USDC/SOL (±10%)
- Capital Invested: 1000 USDC equivalent
- Capital Allocation: ~5 SOL + 500 USDC
Expected Solana Trading Profit: Assuming daily volume of 1M USDC, 0.25% fee rate, 1% liquidity share, daily earnings ~25 USDC, APR ~900% (actual returns vary with price volatility and impermanent loss)
Step 4: Monitor and Adjust
After providing liquidity, regularly monitor the following metrics:
- Price Position: Whether current price is within set range
- Fee Income: Accumulated fee earnings
- Impermanent Loss: Loss compared to simply holding
- APR/APY: Whether annual yield meets expectations
Risk Management and Considerations
Impermanent Loss
This is the main risk in market making. When price deviates from the price at which liquidity was provided, impermanent loss occurs:
Impermanent Loss Example
Assume you provide liquidity at 100 USDC/SOL, investing 5 SOL + 500 USDC (total value 1000 USDC)
- Price rises to 120: Your position becomes ~4.56 SOL + 547 USDC = 1095 USDC, simply holding would be 1100 USDC, impermanent loss ~0.45%
- Price drops to 80: Your position becomes ~5.59 SOL + 447 USDC = 895 USDC, simply holding would be 900 USDC, impermanent loss ~0.56%
- Key Point: Market making is only profitable when fee income exceeds impermanent loss
Price Out of Range Risk
When price completely moves out of set range:
- Stop earning fees (liquidity becomes inactive)
- Position fully converts to single token
- Need to adjust range or withdraw liquidity promptly
Smart Contract Risk
Although Raydium has been audited multiple times, still be cautious:
- Don't invest more than you can afford to lose
- Diversify investments, don't put all funds in single pool
- Follow official announcements, stay updated on protocol changes
- Long-term Positions: Set maximum holding period to avoid capital being tied up
Conditional Stop Loss
Trigger stop loss based on specific conditions:
- Liquidity Stop Loss: Stop loss when pool liquidity drops significantly
- Position Ratio Stop Loss: Stop loss when whale concentration is too high
- Volume Stop Loss: Stop loss when trading volume continues to shrink
- Social Media Stop Loss: Stop loss when negative news about project emerges
BeyondJeet and CLMM Market Making
Although BeyondJeet primarily focuses on copy trading, understanding CLMM market making mechanisms is very helpful for improving overall trading strategy:
Liquidity Insights
Understanding CLMM mechanisms helps you:
- Assess token liquidity depth
- Predict price volatility impact on liquidity
- Choose optimal trading timing and slippage settings
Revenue Diversification
Combine copy trading with market making strategies:
- Copy trading captures price volatility gains
- CLMM market making earns stable fees
- Build more robust investment portfolio
Practical Tools and Resources
Recommended Tools
- Raydium Official Interface: https://raydium.io/clmm/ - Main platform for providing liquidity
- APY Calculator: Evaluate expected returns for different price ranges
- Impermanent Loss Calculator: Simulate loss scenarios under different price changes
- On-chain Data Analysis: Tools like Solscan, Birdeye to monitor pool data
Learning Resources
- Raydium Official Documentation - Deep dive into CLMM mechanisms
- Uniswap V3 Whitepaper - Theoretical foundation of concentrated liquidity
- BeyondJeet Community - Exchange market making experience with other traders
Conclusion
Raydium CLMM brings a more efficient liquidity solution to the Solana ecosystem. Through concentrated liquidity mechanisms, market makers can achieve higher capital efficiency and fee income. However, this also requires market makers to have more professional knowledge and more active management capabilities.
Key Takeaways
- ✓ CLMM significantly improves capital efficiency through concentrated liquidity
- ✓ Price range selection is key to successful market making
- ✓ Need to balance fee income with impermanent loss
- ✓ Regular monitoring and strategy adjustment is crucial
- ✓ Start with small amounts and gradually accumulate experience
For BeyondJeet users, understanding CLMM mechanisms not only helps you better execute copy trades, but also opens up new revenue channels. It's recommended to start practicing with stablecoin pairs, gradually master CLMM market making skills, and ultimately maximize Solana trading profits.
Start Your CLMM Market Making Journey
Ready to explore the world of Raydium CLMM? Start with small amounts and learn and optimize your strategy through practice.