Market Modes — All You Need to Know (Part 1)

This is the first article in the market modes series. This series will cover:

❓What each market mode is,

❓How it works, and

❓Why would you choose it

The market modes is a customizable feature that lets you decide how you want your liquidity position to be adjusted according to the market trends.

A51 Finance offers four market modes to choose from:

🐂 Bull

🐻 Bear

↔️ Dynamic

⏸️ Static

This article is focused on the bull mode.

What is Bull Mode and why would you choose it?

Imagine you added liquidity in a pool of two assets, ABC and XYZ:

• ABC (the quote asset and is on the left side of the liquidity graph)
• XYZ (the base asset and is on the right side of the liquidity graph)

Bull mode is best for:

1. Volatile/Stable pairs e.g. ETH/USDC
   A user might want to adjust the liquidity position only when ETH increases in price.
2. Volatile/Volatile pairs e.g. ETH/LINK
   A user might want to adjust the liquidity position when either of the assets increases in price.

Let’s say you expect XYZ to go up then you will choose the bull mode. It means you focus on the left asset (ABC) and expect the right asset (XYZ) to increase in value.

⚙️Here’s how it works:

Now, imagine XYZ is doing really well in the market. Its price is going up. What will happen?

• More people want to swap their ABC for XYZ.
  They are putting in ABC and taking out XYZ hence changing the balance between the two in the pool.
• A51 adjusts the price so that it now takes more ABC to give 1 XYZ.
• This moves the price to the right on the graph showing that XYZ is becoming more valuable compared to ABC.
• The protocol reacts by moving your assets to the new position, so it’s always on the left side of the current active tick even though the price is generally moving upwards.

Bull mode in action

The goal is to make money from trading fees while betting on XYZ’s value going up compared to ABC.

💰️How will you earn more?

Even though the price generally moves up, there are small dips back to the left, which also bring in fees for you. For instance,

• Arbitragers will keep selling XYZ to the pool if its price doesn’t match the broader market.
  When they sell XYZ, they’ll get ABC in return, which comes from your assets. This generates fees for you.
• The new XYZ you obtain will be sold back to traders first, creating more fees.

This way, you keep making trading fees as the price moves up, without losing too much if the price suddenly drops.

⚠️But here is a disclaimer:

Bull mode only follows the price and helps you make money when the price goes up by automating your strategy, but it’s not foolproof. If the price goes down, you are not automatically protected, and you might face losses if you’re not careful.

Bull mode doesn’t guarantee profits; it’s just a tool for LPs to automate a strategy. LPs need to do their own research and decide if they’re bullish on a certain token.

Next to learn — The Bear Mode.