Defi is not what it once was. It has become much more professional.

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3 Feb 2025

During the past days, I've been discovering the world of concentrated liquidity pools. I thought it might be a good idea to write a post about it so that others can learn what I have learnt so far and also for myself to be able to come back at a later stage.
About 20 years ago, I did a lot of trading with shares, options and warrants. It was an activity that allowed me to make some profits but it came at a high price in psychological terms. I was always unhappy and stressed. As a result I changed my strategies to buy and hold. I mainly invested into titles that gave a return in the long run and I was quite happy with that. I did the same in the crypto world but little by little my traditional income sources in the crypto world were drying up.

This is the reason why I started to look for new income sources and I will create some posts about what I have found out so far.

Financial derivate world in the crypto sphere

When I look at crypto today and compare it with crypto 10 years back when I did my first steps with crypto, a lot of things have changed. The biggest difference is that the crypto world has become more professional and a whole sector of financial derivates has evolved. It's a far cry of the first DEFI platforms where you would get a useless token that would be minted like crazy and lose value after going to the moon for some instances.

Liquidity pools and how they change crypto

The technology that you find in the DEFI world today is pretty advanced. For me the greatest invention is liquidity pools. You can find them on all the major blockchains and they make the old trading book concept useless. Basically you join two assets together and by swapping one asset for the other you modify the liquidity in the pool and therefore the price. Thanks to liquidity pools every token has a market. You don't need a buyer to sell your tokens in the pool and that is a huge step forward. It gives liquidity to any token pair. Of course the size of the liquidity will define how much tokens you can swap or how much the price impact will be by a swap.

Mathematically, the effect of a transaction can be calculated when taking all the variables into consideration. This fact makes it possible to build code around liquidity pools. This code in return provides the basis for derivate tools, aggregation and others.

DEFI on Solana

I don't pretend to know all the blockchains and their ecosystems but I believe that the defi ecosystem on Solana is pretty well developed. What is interesting is that all platforms integrate with each other. You have liquidity pools created on Raydium, Orca or Meteora but they use all a compatible protocol that allows the platforms to also provide the pools that were created on other platforms.

It's the same for swaps. If you want to swap tokens on Solana, you go to Jupiter where you will have the best rates to swap a pair from all the possible swaps on Solana. This leads to automatic arbitrage and interconnectivity between the platforms.

On Solana, you also have the option to lend or borrow tokens on platforms like Kamino. This opens a way to many derivate solutions like shorting or leveraging. These are tools that can be found also in the normal financial sector.

The great advantage is that this all is run in a decentralised way and you always transact on the blockchain itself.

Concentrated liquidity pools

One of such derivate solutions are concentrated liquidity pools. They are on Solana and also on many other blockchains. In the coming posts I will explain how they work and my experience while using them.