Liquidity provision in CLMMs: evidence from transactions data

TL;DR

This paper analyzes liquidity provision in CLMMs using transaction data, reconstructing PnL dynamics, classifying LP behavior, and revealing that only a minority of LPs avoid losses, with profitable strategies often closing positions early.

Contribution

It introduces a methodology to reconstruct LP PnL from on-chain data, classifies LP behaviors, and provides insights into the profitability and strategies of liquidity providers in CLMMs.

Findings

Only about one in six LPs avoids losses.

Profitable LPs tend to close positions early.

Most LPs operate around the current pool price.

Abstract

The emergence of Concentrated Liquidity Market Makers (CLMMs) has made liquidity provision on decentralized exchanges an active and risk-sensitive task. However, the standalone profitability of liquidity provision remains unclear for liquidity providers (LPs) who neither hedge their inventory risk nor receive off-pool profits. This paper studies the actual outcomes of LP activity using historical transaction-level data from WETH/USD liquidity pools on the Base chain across the Uniswap, Aerodrome, PancakeSwap and SushiSwap protocols. We propose a methodology for reconstructing LP PnL dynamics from on-chain events and introduce an original metric that captures both the terminal state of LP capital and its path over time. Based on this framework, we estimate the share of successful LPs, classify their behavior and develop a taxonomy of 15 position types as structural components of PnL. We further identify a distinct class of multi-LPs operating across several pools and show that the dominant profitable position configurations are concentrated around the current pool price. The results show that only about one out of six LPs avoids losses in the selected market segment, raising an open question about the true economic motives of LP participation. Evidence also suggests that successful LPs often close positions before the full range is traversed, making observed behavior closer to profit-target-based strategies.