(Please read parts 1 & 2 also, links at the bottom of this page for the complete guide.)
Firstly, what is Crop Rotation? In utilising liquidity pools (Lp) the idea is to maximise profits by staying in said Lp for a short period of time, that is, rotating your capital from one Lp to another given various conditions, and as opposed to holding a position long-term in a single Lp which is generally the favoured ideology for Lp's.
In general, Crop Rotation (CR) can be a high risk strategy with obviously higher returns, but from my experience if you remain on the ball and follow carefully it does indeed pay off. However, unlike a hodl position you have to check in frequently to understand and make sure when to get in and more importantly when to get out of a Lp by using CR.
Getting in.
So let's get started: Where do you find a potential Lp to invest in? (In this article Gate exchange is used by example but there are many places you can do the same, shop around)
Under 'finance' click 'liquidity mining'. After this a page pops up with the mines and is ranked as highest 'Today APR' first.
A screenshot today at 6.30 am UTC Wow, look at those Today APR's high as 2196% and those high APR's are often triggered by a sharp spot price increase. Indeed FAN is up 148% today, but sometimes due to Lp's reducing quickly in size also. Would you buy into FAN now? IMO it would be a FOMO move if you did. Don't be too dazzled by these huge front page figures when trying CR.
So, where do you find them? Often page 2 or 3 but even as far back as page 7 from my experience. What are you looking for? Here's my personal strategy but I'm sure there are other ways to conduct CR from this point on. (For purposes of explanation I will use APT as an example that I looked at 3 days ago.)
APT found Page 2, 13th January 2022.As you can see I found APT/ETH pair with a 'Today APR' but with 0% '7-Day Annualized Yield' . Hovering over the 5th column a black pop up box appears and within this box it clearly shows you that the native coin APT has just started to be offered within the Lp, in this case about 3 hours previously. These are the gems you are looking for, they're new on the scene and haven't yet grabbed the attention of the larger liquidity providers as you can also see the pot is small right now at $2,240. Often, from experience, these 'new native pots' occur in the early UTC hours @2 to 5 am, thus a daily check in to find new Lp's for me is around UTC 5 to 7 am and most days there are one or two happening on Gate.
In sum 1, Go to Liquidity Mining page, scroll down pages, find a 7-Day with 0% with a high Today % (or 7-Day near to 0% but still with high Today %), check the black box and look for a native coin offering too, and sometimes with the benefit of GT on top too as an extra bonus . If you are quick, good profit can be made by being the early bird. But before you continue further on buying-in to a Lp do a quick DYOR on global price, when listed/ICO, project viability etc.; it may still not be worth it by your own risk assessment.
So, off to the spot page, click Lp, and looking at the overview of our chosen coin, the Lp is small and currently 741% 'Today APR'. Is that APR correct? No, as there is not enough history to even calculate as it only has say 3 or 4 hours history thus nowhere near a day's history yet.
So time to calculate. In this instance $ spot price was $0.0785. The 'Current Reward pool is APT 68,700 over the coming 30 days, giving us APT 2,290 per day, or in a $ term $179.85 per day relevant to the current spot price. Pretty good but you do see better, and from experience as high as $430 per day in native coin rewards. Calculating further, to work out the true Today APR is simple: $2,231.44 Lp shareholders receive $179.85 in APT rewards alone in a day, which gives a daily return of 8.056% on investment; times that by 365 days gives you a true APR of 2,940% and not 741% as publicised . Quite a difference by calculating and using a minute of your time. But remember, if you decide to add, the Lp becomes larger and thus the share goes down. Brief example, you add $250 to Lp, Lp now $2,481, daily 7.245%, APR 2,644%. So you get $18.11 per day in APT on your $250 initial investment (plus maybe some Gate token too in the future), that, in my opinion is pretty good and even higher than the top of page 1 FAN pair and worthy in this case of a buy-in but given obviously your initial DYOR. (Note: I did not buy into this personally as I wanted to show you only by example for the purposes of this article and haven't DYOR this coin).
In sum 2, go to spot page, click Lp, and then re-calculate actual daily reward and overall APR. Look for native coin daily higher rewards than say $150 (my own benchmark but up to you) and if you buy-in re-calculate the new daily and APR rate to understand your potential profit. Also current small Lp pots are good.
Getting out.
So, you've done your research, you've bought in, and the rewards start piling up and all is good. But when do you get out? In my experience, and some 40 trades so far, between 1 and 7 days and constant checking as to the state of the Lp and indeed god being the spot price. What can make you decide to pull out of your Lp?
Firstly, signs of spot price decline when you think it may not recover. Don't be too hasty though to pull out, as say you were in that APT pot for a day but the spot price had gone down say 5% you'd probably still be up on total investment given your rewards are piling up. Lp's in high reward ratio can absorb spot losses quite well so don't panic.
Secondly, 'saturation'. At some point, larger players enter too and especially when a coin works it's way up the list and appears on the front page of 'Today APR' gainers they also buy-in. This makes the Lp much larger thus reducing your share, which in turn reduces the APR. My rule of thumb is that when the APR is lower than 365% then that means your daily return is less than 1%. However, I have on occasion let it ride lower to 300% as the spot price has settled or is going north but never past 7 days as I always keep in mind too that my capital released may yield more profit in another Lp hence the concept of Crop Rotation and maximizing profit thereto. Move onto the next Lp by conducting those daily checks on the Liquidity Mining page; find those gems and rinse and repeat the process.
In sum 3, Get out if the spot price drops too much and you don't think it will recover but don't panic on smaller dips. Don't be shy to take a loss on your investment as you can't win them all (I've only lost on 2 out of say 40) and exit the Lp and move onto the next; keep your capital working is the key to successful CR. Get out if the Lp becomes too large (saturated) and thus your share is too small to even gain 1% a day on investment in general. Look at CR Lp's as a 1 to 7 day spin in general too.
Finally, a few other Q&A's that you might wonder about.
What are better Lp's to enter, USDT or ETH paired? For me, the majority have been USDT and USDT is stable, ETH is not, thus ETH pots are higher risk than USDT given you are then in a pot which is essentially two altcoins. However, when you find say a USDT Lp also check for an ETH Lp paired with the same altcoin. Sometimes you may find by calculation that your money is better served there. Of note: If GT is applied to a Lp too, from experience more GT is generated in a USDT Lp than an ETH Lp given spot volume is generally higher and the driver of fluctuating GT hourly rewards.
How often should I check my Lp when using CR? As often as you can. For me, 4 to 6 times a day.
Can I set a stop-loss on a Lp? Answer no. This is indeed a negative thus the constant need to check its progress. CR is not a lazy man's way to make money: stay on the ball.
Why bother with Crop Rotation when I can just make a Lp and HODL? Both have their own place. Hodl Lp is easy to do and a great idea to make your idle coins work and give you more potential return on your initial investment. CR you have to work at but it can realize much more profit in the short-term or even long-term if you keep at it.
How can Lp's be used as a hedge? Not my field for the purposes of my Lp CR strategies, but if you wish further reading on this you can find good info on the 're-balancing' effect. That is, say you buy BTC at $43K in an Lp and BTC goes to $30K, you have more BTC than you started with but less USDT. You exit the Lp at $30K and lucky you the price goes back to 43K or more and you indeed have more BTC in dollar value than you started with. But, like I say not my field and takes a bit more math and further strategy to work this one out.
I see Gate has been used by example, but what other exchanges do this? Binance for one, but I don't use it as their overall options are far less than on Gate. Maybe for Hodl Lp's on larger cap coins great, but for conducting CR poor in my opinion. Plenty others, shop around.
Why do some altcoins offer their native token in a Lp? Just my opinion, to boost liquidity by attracting new investors as to the rewards they can gain. Also it could be that a coin is failing thus they try to entice people to buy spot as you need to buy before you enter a Lp. So caution and DYOR !
When do Lp's start to have a native coin reward offer and for how long? Usually in the early UTC hours and the majority run for either 30 or 60 days on the whole.
Why is Crop Rotation risky? A short answer: Often newly listed coins with little history are targeted, and often small cap open to easy manipulation. Again DYOR!
(BTW: If your confused by screenshot times its because I'm in Asia UTC +7)
Well, I hope you found all 3 parts to Liquidity Mining useful and good luck if you decide to do Crop Rotation too. Please feel free to comment below and if you want to say hello, please visit me at BBS.market/GGGXX DM & AMA.
Parts 1 & 2 links here:
Cheers, CryptoGlyn.