Market Modes — All You Need to Know (Part 2)

A51 Finance | Previously Unipilot
3 min readFeb 28, 2024

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In the second part of the series, we will discuss the bear mode. If you have not read the first one, here’s the link.

Let’s dive in!

What is Bear 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)

Bear 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 decreases in price.

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

⚙️Here’s how it works:

Now, imagine XYZ is declining in the market, that is, its price is going down.
What will happen?

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

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

💰️How will you earn more?

Even though the price generally moves down, there are small raises back to the right, which also brings in fees for you. For instance,

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

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

⚠️But here is a disclaimer:

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

Bear 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 bearish on a certain token.

Next to Learn — The Dynamic Mode.

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A51 Finance | Previously Unipilot

'Remote Control' for your liquidity positions offering a superior UI to use underlying AMMs.