Another profitable strategy for investing in memes is to boost returns through passive LP staking.

Original Title: Memecoin LP II: How I Learned to Stop Worrying and Love IL

Original Author: Cap'n Jack Bearow, Berachain DeFi Lead

Original Translation: Felix, PANews

8 months ago, I wrote a post about LP costs, which didn't garner much attention at the time. However, the post's views tripled yesterday, so this article revisits this method with the latest example.

Premise: To make this method work better, you need to early position in a memecoin, believe in the long-term viability of a particular memecoin, and have a significant trading volume. This article's example uses the BUCK token.

As mentioned in the previous post, you need to set a v3 range where the lower bound of the range is slightly below the token's current price (usually around less than 25%), and the upper bound of the range is relatively higher (in this example, around 100 BUCK/SOL or about $2.5/BUCK). This setup can minimize the amount of SOL you need to deposit into the LP and, as the price rises, periodic investments will gradually transition you from the memecoin to SOL.

Now, let's discuss Impermanent Loss (IL): Here's a quote from @AbishekFi:

"IL is a feature, not a bug… measuring LP returns is a hot topic, but it actually depends on your LP preference. Do you want Asset A or Asset B? Or are you willing to have your position valued higher? The only way this happens is if one/both assets in your LP appreciate, causing Impermanent Loss. However, if you LP two assets you don’t mind holding, you're just creating an on-chain DCA that incurs fees along the way."

As mentioned by @shawmakesmagic, this could be a very valuable tool for token developers, especially for AI agents with ongoing costs. Providing v3 range liquidity for a token pair allows developers to use fees for profit/fee payment while participating in the token's appreciation. It will directly adjust the value over the long term (depending on how the range is set).

To demonstrate the effectiveness of this approach, let's look at a simple BUCK example, where the author divides it into Initial Reserve, Continuous Impermanent Loss, Generated Fees, and Return on Investment.

Yesterday, a BUCK/SOL LP was created, providing 17 SOL and 892,000 BUCK. The reason for this was the widespread appeal of the Gamestop movement, fast token turnover, high volatility, and trading volume.

The range was set from an upper limit of 100 BUCK/SOL (about $2.5) to a lower limit of 8,500 BUCK/SOL (0.029 dollars), approximately 20% lower than the market price of about 6,900 BUCK/SOL, ensuring that if BUCK falls in the short term, the token pair will not exceed the range.

This represents a total value of about $4,000 in SOL and $30,000 in BUCK (related to later calculated impermanent loss).

10 hours later, withdrawing the LP produced:

· 29.3 SOL and 156,000 BUCK (Fees)

· 25.1 SOL and 841,456 BUCK (LP)

The $34,000 deposited in 10 hours generated $12,500 in fees, roughly equivalent to 88% of the daily fee generation. This is an absolutely incredible figure, achieving an APY of 32,120% even without compounding.

In this scenario, the impermanent loss resulted in the loss of about 50,000 BUCK tokens, which were replaced by an additional 8 SOL. From an impermanent loss perspective, these are negligible.

To illustrate more clearly:

· Deposit (Total) = 17 SOL and 892,000 BUCK

· Withdrawal (Total) = 54.4 SOL and 997,000 BUCK

· Total Profit from LP = 37.4 SOL and 105,000 BUCK

It is evident that the impermanent loss generated by the pool is significantly offset by the fees generated by the trading volume. This has been optimized in token pairs that maintain a roughly consistent price with extremely high trading volume.

What's even more intriguing is that this can be further optimized:

· Increase the LP fee tier from 1% to 2% as the liquidity deepens and the trading volume increases

· Tighten the upper limit of the initial range to further concentrate liquidity, and if the price rises, gradually rebalance the range over time

· If you want to avoid a drop after a token has risen (no round-trip trades), you can pull your LP and readjust the lower limit of the range to reattain 20% of the current floor price, thereby pocketing the SOL you have already DCA-ed.

In the meme market, where there is high demand for trading volatility and low sensitivity to price, positioning oneself as a passive LP is an excellent strategy to maximize returns. This is especially true for token pairs with longer holding times, high trading volumes, and taking into account users who are uncertain whether to hold SOL or meme.

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