Why You Should Simulate Liquidity Pools on Orca Decentralized Exchange BEFORE Investing

Investors on Orca DEX often run into the same issue: After they invest in a liquidity pool the return that was displayed is not paid out accordingly. In this post we breakdown exactly why that happens & how you can simulate an accurate liquidity pool return.

Today we're going to break down the importance of simulating concentrated liquidity pools before investing. We'll also dive into why you shouldn't just look at the APRs that some exchanges display by default.

But first we need to understand what 'Simulating' actually is. Simulating is the process of analyzing potential performance of an investment in a liquidity pool. When simulating, we're using historical data to create a prediction of performance in the future.

Simulating can help you understand performance, consistency, risks, and many other KPIs about a liquidity pool. Let's hop in!

Metrix Finance is an all-in-one liquidity pool tooling software for Uniswap, Orca, PancakeSwap, SushiSwap, and Trader Joe. You can find high-paying concentrated liquidity pools, simulate potential liquidity pool APRs, and calculate impermanent loss all on one single platform.
Orca DEX RENDER/SOL liquidity pool
Orca DEX RENDER/SOL liquidity pool

The above screenshot showcases the RENDER/SOL liquidity pool on Orca exchange. You'll notice that the 365-day yield is particularly low. The reason for the 'low-yield' is because this screenshot was taken on a Sunday & typically volume for all crypto assets is lower on the weekends, especially on Sunday.

But shouldn't the other days that have normal/good volume boost the overall yield to something reasonable? They should, but they don't. This is because Orca exchange only looks at the previous 24-hours of data when calculating & displaying this '365-day yield'.

This is a huge problem because you could end up passing up on opportunities that seem to have a low-yield but could have much higher returns when you look at their consistent volume.

Or even worse, you could end up investing into liquidity pools that showcase a very high-return when in reality they had ONE good volume day and do not consistently perform well.

Orca DEX RENDER/SOL liquidity pool on BuildrMetrics
Orca DEX RENDER/SOL liquidity pool on Metrix Finance

The above screenshot showcases the EXACT same liquidity pool with the EXACT same range, taken at the EXACT same time. You'll notice that this screenshot displays 69% which is wildly different than the 19% that Orca displays. The only thing that was changed here was the 'Calculation Range'.

Calculation Range is the terminology we use for how many days being factoring into your simulation or earnings estimate. Orca uses a calculation range of 1 day (24 hours). As we mentioned earlier, the orca calculation range cannot be change, it's default & set to 24 hours. Whereas Metrix Finance allows you to customize your calculation range using the same data Orca uses!

In the above screenshot we used a calculation range of 30 days because this pool has had consistent volume & fees over the past 30 days.

Orca DEX RENDER/SOL volume
Orca DEX RENDER/SOL volume

Displayed above is the volume for the RENDER/SOL liquidity pool on Orca. As you can see the most recent day has very low volume, this is because it was a weekend. Whereas typically this same pool has much higher (and consistent) volume. It makes no logical sense to look at the weekends volume annualized because it's going to be lower than what you'll obtain assuming you're in the pool for at least a week.

Similarly it makes no logical sense to look at 24-hours of data when the yield is very high when realistically you will get a lower return after deploying capital into the liquidity pool.

Ready to start simulating?

Metrix Finance allows you to simulate earnings for free on most Decentralized Exchanges. However since Orca is new to Metrix Finance it is currently exclusive to our Pro Plan members. Metrix Pro allows you to simulate on Orca but also see Top Positions for LPs, analyze on multiple networks, compare pools with ease, and much more.

If you're ready to start simulating, you can head over to our app and get started, or if you're ready to jump the gun on 'Pro', head over to our Pricing page.

Lastly, we took a focus on Orca today, however Orca is not the only exchange that does this. Trader Joe, PancakeSwap, and many other exchanges that we do not support quite yet only display yields based on 24-hours of data.

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