Active Management Burden
The ongoing requirement for liquidity providers to monitor and adjust positions in DeFi to optimize returns and mitigate risks.
What is Active Management Burden?
In concentrated liquidity models like Uniswap v3, providers must frequently rebalance ranges—e.g., shifting from $4,500 to $4,600 as ETH moves—to avoid inactive positions earning zero fees. This contrasts with v2’s passive approach, imposing time and gas costs that can exceed earnings for small positions.
Burden includes tracking volatility, impermanent loss, and MEV risks, often requiring automation or services like Liquidity as a Service (LaaS) to handle adjustments. For institutional providers, this operational overhead rivals traditional market making, with uptime KPIs over 90%.
Emerging protocols use AI-driven rebalancing to reduce burden by 70%, allowing passive-like participation while maintaining efficiency.
Related Terms
Borrow Rate (Lending)
The interest rate borrowers pay to access funds from a lending pool.
Pre-negotiated Licensing Agreement
A pre-arranged contract for accessing resources with defined payment terms.
Spot Price
The current market price at which a digital asset can be immediately bought or sold.
Mark Price
The fair market price used for margin calculations and liquidations to prevent manipulation.
mBridge
A multi-CBDC platform for cross-border payments using blockchain.
Multi-Hop Swap
A DEX trade that routes through multiple liquidity pools or token pairs to achieve the desired swap, optimizing price and reducing slippage.