Pool Selection and Range Management

A pool qualifies on five things. The protocol has passed diligence. The pair is correlated enough for the intended range, and the credit of its weaker asset is acceptable. The volume is persistent across regimes rather than driven by a single event. The fee tier matches the pair’s volatility. And the competition, the liquidity already concentrated where the desk would place its own, leaves enough fee income per unit of liquidity to be worth the position. Fee income is compared across every venue quoting the pair, because the same flow splits unevenly between them.

A concentrated position earns fees only while price is inside its range. Too narrow and the position spends time out of range earning nothing and rebalancing often; too wide and the capital is thinly deployed. The desk sets range width from the pair’s realized volatility over a lookback matched to the intended holding period, so that the expected time in range is a design input rather than a hope. Correlated pairs get tight ranges; volatile pairs get wide ranges or no position at all.

When price approaches an edge, the position is rebalanced: withdrawn, swapped toward the new center and redeployed. Each rebalance crystallizes divergence loss and pays a swap fee and gas, so rebalancing more often is not free. The rule fixes the trigger, how close to the edge price must come, and the new range, and it includes a minimum interval so that a whipsaw cannot churn the position back and forth.

Every position is tracked on fees earned against the divergence loss it has accrued at current prices and the costs paid to hold it. A position whose fees are not covering its divergence over the holding period is exited rather than waited out. Emissions are tracked separately and are never used to justify a position that fails on fees alone.

Positions are closed when a pair leaves its correlation band, when a pool’s volume falls below the level it was underwritten on, on a protocol incident, on a change in the pool’s fee or hook logic, or when the desk has a better use for the capital. The exit is planned against the pool’s depth before entry, so that leaving never costs more than the position was expected to earn.