Skip to content

Docs

Vaults

Each Arrowfarm vault follows a specific liquidity strategy.

When a user deposits, Arrowfarm takes the supplied asset or assets, converts them into the required ratio if needed, and deploys the liquidity into selected LP vaults across supported platforms such as Uniswap. That liquidity is then used to facilitate swaps, earning trading fees in return.

From there, Arrowfarm automatically manages the position — including compounding earned fees and adjusting the liquidity range when needed.

Automated Liquidity Management

Arrowfarm vaults automate the day-to-day management of concentrated liquidity positions.

Instead of manually selecting ranges, monitoring prices, collecting fees and repositioning liquidity, users deposit into an Arrowfarm vault and the strategy manages these processes automatically.

Arrowfarm focuses on keeping liquidity productively deployed while avoiding unnecessary transactions that could cost more than they earn.

How Arrowfarm Manages Liquidity

Once assets are deposited into a vault, Arrowfarm deploys them into an underlying liquidity pool on a supported platform such as Uniswap.

From there, two automated systems manage the position:

  1. 1. Fee Compounding

    Trading fees earned by the position are periodically collected and reinvested. Arrowfarm only compounds when the value being reinvested justifies the execution cost.

  2. 2. Range Management

    For concentrated liquidity pools, Arrowfarm monitors the position's active price range and can reposition the liquidity when market conditions justify doing so.

Arrowfarm does not attempt to follow every market movement. Repositioning is only performed when the strategy determines that the expected benefit is sufficient to justify the cost.

Price Safety Check

Concentrated liquidity strategies depend on market prices when adding, removing, or repositioning liquidity.

During periods of sudden market movement, the current pool price can temporarily differ significantly from its recent average. Acting on that distorted price can create unnecessary losses.

Arrowfarm uses a Price Safety Check designed to prevent the strategy from acting on unusually distorted prices.

Before certain liquidity actions are executed, Arrowfarm compares the current market price with a recent time-weighted average price (TWAP).

Current Pool Price

Price Safety Check

Compare against TWAP

One of:

Within tolerance

Action proceeds

Outside tolerance

Action waits

Decision diagram: the current pool price goes through the Price Safety Check, which compares it against a recent time-weighted average price. Exactly one of two outcomes follows, never both: if the price is within tolerance, the action proceeds; if the price is outside tolerance, the action waits instead.

If the difference is too large, the strategy waits rather than executing the liquidity action.

This is intended to reduce the risk of acting during temporary price distortions or manipulated market conditions.

Note: The Price Safety Check reduces certain price-manipulation risks but cannot eliminate them or guarantee against loss.

Range Management

Concentrated liquidity is provided within a defined price range.

While the market price remains within that range, the position can actively provide liquidity and earn trading fees. If the market moves outside the range, the position may stop earning fees until it is repositioned.

Arrowfarm monitors the range automatically.

When a position needs to be moved, the strategy considers:

  • the current market price;
  • the position's existing range;
  • the expected benefit of repositioning;
  • the cost of making the move; and
  • how recently the position was repositioned.

If moving the range is not economically worthwhile, Arrowfarm waits.

Why can a vault be out of range?

A vault may remain Out of Range for a period without immediately being repositioned.

This can be intentional. Moving liquidity has execution costs, so Arrowfarm does not reposition simply because the market has crossed a range boundary.

If the expected benefit of moving the range is too small relative to the cost, the strategy waits until repositioning becomes economically worthwhile.

Auto-Compounding

As liquidity positions generate trading fees, Arrowfarm periodically collects and reinvests them back into the vault.

When it is economically worthwhile, Arrowfarm:

  1. collects the accumulated fees;
  2. converts them into the required asset ratio; and
  3. reinvests them into the liquidity position.

This allows earned fees to begin generating additional fees without requiring users to manually claim or reinvest them.

Compounding does not happen on a fixed schedule. If the cost of harvesting would outweigh the benefit, Arrowfarm waits until the transaction makes economic sense.