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Providing Liquidity

Clober Liquidity Vault (CLV)​

What is CLV​

The Clober Liquidity Vault (CLV) allows users to passively provide liquidity to Clober’s on chain order book. By depositing assets into a CLV, users delegate active market making to a designated operator. The operator places bids and asks on the order book and aims to collect the spread that traders pay when they take liquidity.

Users do not need to manage orders themselves. The CLV smart contract holds the assets, the operator executes the strategy, and the vault share value reflects the performance over time.

How CLV generates yield​

Market makers provide both buy and sell quotes so that traders can execute at any time. Because of this role, a market maker often takes positions that are opposite to short term price movements. This is a natural and unavoidable part of market making.

Examples

  • When the price rises, traders tend to lift the ask side of the vault. The vault sells the asset and accumulates more quote currency.
  • When the price falls, traders tend to hit the bid side of the vault. The vault buys the asset and accumulates more base currency.

The market maker is compensated for taking this inventory risk through the spread between the bid and ask prices. Over many trades, if spreads and risk are managed well, the expected income from spread capture can outweigh losses from adverse price moves.

CLV intentionally embraces this inventory risk. It is not a delta neutral or hedged strategy. Instead it aims for higher expected returns by keeping the strategy fully on chain, reducing external hedging costs, and focusing on simple but effective order book market making.

Why the vault balance can appear heavily skewed​

Users sometimes notice that the vault inventory becomes concentrated in only one of the two assets, for example mostly ETH or mostly USDC. This is expected behavior.

When the market trends in one direction for an extended period, traders consistently hit the same side of the vault’s quotes. The vault ends up buying or selling repeatedly and therefore holds more of the other asset. This imbalance is not a sign of malfunction. It simply reflects:

  • The sequence of trades against the vault
  • The movement of market prices
  • The flow of liquidity demand during that period

Over time, as the market fluctuates, the vault naturally rebalances as traders begin hitting the opposite side and as spreads continue to generate income. The vault inventory is dynamic and will change with market conditions.

Users should expect skewed inventory during volatile or trending periods. It is a normal part of how spread based market making works.

Inventory risk and adverse selection​

Since CLV does not hedge positions externally, it carries full inventory exposure. This is sometimes called adverse selection risk.

Key characteristics

  • If the market continues moving in an unfavorable direction after trades are executed, the vault can experience inventory losses.
  • If the market trades within a range or mean reverts, the vault may repeatedly earn spread without large directional losses.
  • The strategy avoids complexities such as leverage, external collateral, or liquidation risk. Everything happens directly within the CLV contract.

This design trades complexity risk for transparent inventory risk. Returns may be more volatile than passive AMM LPing, but the strategy aims to earn higher long term rewards through active spread harvesting.

CLV compared to AMM liquidity provision​

Most users are familiar with passive AMM LPing. CLV functions very differently.

AMM liquidity​

  • Liquidity is provided passively and cannot adapt to market conditions.
  • Price discovery happens externally and arbitrage traders constantly extract value from AMMs to keep them aligned with the market price.
  • Impermanent loss can exceed fee earnings, especially in volatile markets.
  • Capital efficiency is low because a large portion of liquidity is not used for active trading.

Order book market making via CLV​

  • The operator actively adjusts spreads, order sizes, and placement to respond to volatility and trading flow.
  • The strategy can defend against toxic or informed flow by widening spreads or reducing size.
  • Capital is deployed more efficiently near the active trading price range.
  • The vault still carries inventory risk but benefits from a more active and flexible approach.

CLV brings CEX style market making behavior on chain while keeping assets non custodial and algorithmically protected.

Historical performance example​

To illustrate how this type of strategy can behave, ETH-USDC CLV vault was live on Base mainnet for approximately four months.

  • Benchmark was a passive 50 to 50 ETH USDC portfolio held over the same period
  • The market making strategy generated approximately 42% excess return over the benchmark
  • On an annualized basis this corresponded to roughly 180% APY

This example is illustrative only and does not guarantee future returns. Market conditions, volatility, and trading volume all impact performance.

Protecting CLV from operator error and malicious activity​

Although operators manage the strategy, liquidity providers must always remain protected. CLV uses several on chain restrictions to prevent harmful actions, including mandatory price boundaries enforced using a third party oracle from Stork.

This ensures that operator freedom is balanced with strict risk controls. Operators can run sophisticated market making strategies, but cannot behave in ways that endanger the vault.

The integration of Stork makes the CLV trustless by ensuring that price discipline is enforced at the smart contract level, not by relying on social trust or off chain monitoring.

What users should expect before depositing​

Depositors should understand the following characteristics of CLV:

  • Vault share value may fluctuate. This is not a fixed yield product.
  • Inventory can become heavily skewed temporarily. This is normal for inventory taking market making.
  • Returns depend on spread capture, trading activity, and price movement. They will not be smooth.
  • Assets remain in the smart contract and cannot be misappropriated by the operator.
  • Oracle based guardrails tightly constrain operator behavior and protect against error and malicious intent.

CLV is designed for users who want exposure to professional market making strategies while maintaining on chain transparency and control. It provides a more active, adaptable, and potentially higher returning alternative to passive AMM LPing, with clear and predictable risk boundaries.