Protocol Owned Liquidity KPIs

Liquidity Depth Efficiency (±1% band)

Purpose. The principal objective of protocol-owned liquidity (POL) is to let end-users execute modest trades with minimal price impact — i.e., low slippage.

Near-depth efficiency quantifies how much of the treasury's deployed capital is positioned exactly where those small trades occur, within ±1% of the current mid-price. A higher value means tighter spreads and a deeper market for everyday users.

Formal definition

\text{LDE}_{1\%} = \frac{D_{-1\%} + D_{+1\%}}{C_{\text{deployed}}}

Term	Meaning
$D_{-1\%}$	Dollar liquidity from the mid-price down to −1% (buy-side depth).
$D_{+1\%}$	Dollar liquidity from the mid-price up to +1% (sell-side depth).
$C_{\text{deployed}}$	Total dollar capital currently placed in all active liquidity positions.

Interpretation

Numerator — aggregate, immediately-usable depth that cushions user orders up to a 1% move in either direction.
Denominator — treasury capital at work.

The ratio therefore answers: "How many dollars of true, near-mid liquidity do we supply for every dollar we've deployed?"

A rising $\text{LDE}_{1\%}$ signals higher capital productivity and lower expected slippage for retail-sized trades.

Measurement protocol

Snapshot cadence — Record pool state (ticks, liquidity, prices) at a fixed interval — e.g. every day.
Depth calculation — For each snapshot: determine $P_{\text{mid}}$ ; sum the notional liquidity between $P_{\text{mid}}$ and $P_{\text{mid}}$ (±1%) to obtain $D_{-1\%}$ and $D_{+1\%}$ ; capture $C_{\text{deployed}}$ ; compute $\text{LDE}_{1\%}$ .
Smoothing — Publish a rolling mean (or median) over the most recent 30 days to neutralize intraday noise yet remain reactive to structural shifts.

This methodology delivers a clear, statistically robust indicator of how effectively POL capital serves its core mandate: providing deep, low-slippage execution for end-users.

Capital Retention Ratio (CRR)

This indicator describes how well protocol-owned liquidity capital retains value relative to a passive "hold-both-assets" position established at the moment of initial deployment.

Formal definition

\text{CRR} = \frac{V_{\text{POL}}}{V_{\text{HODL}}}

with

V_{\text{POL}} = \underbrace{V_{\text{UniV3}}}_{\text{active LP positions}} + \underbrace{V_{\text{Lending}}}_{\text{net lending-market balances}} + \underbrace{V_{\text{Liquid}}}_{\text{idle token holdings}}

Term	Description
$V_{\text{POL}}$	Mark-to-market dollar value of all capital currently deployed by the protocol (LP NFTs + lending positions + liquid tokens).
$V_{\text{HODL}}$	Dollar value that would exist today if the original token quantities — fixed at the time of initial deployment — had simply been held outside liquidity provision.

Interpretation

CRR = 1.00 — POL capital matches the passive hold; impermanent loss is zero.
CRR < 1.00 — Capital has under-performed the passive hold; the gap is economic drag from impermanent loss.
Values trending closer to 1.00 confirm that inventory management, range selection, and rebalance cadence are effectively containing drift.

Measurement protocol

Snapshot cadence — Capture pool reserves, lending balances, liquid token amounts, and current market prices at a predetermined daily interval.
POL valuation — Convert every component to USD (or chosen base unit) to calculate $V_{\text{POL}}$ .
Passive-hold baseline — Multiply the original token quantities (recorded at initial deployment) by the same current prices to compute $V_{\text{HODL}}$ . This baseline remains constant in quantity across all measurement windows, ensuring a consistent comparative.
Publishing — Compute CRR for every snapshot. Report a 30-day rolling median to mute short-lived market noise while still flagging persistent drift.

CRR provides an unambiguous gauge of capital preservation. Maintaining CRR near unity demonstrates that the POL engine is minimizing impermanent loss and safeguarding capital against adverse price movements.

Conclusion

The two metrics selected — Liquidity Depth Efficiency ( $\text{LDE}_{1\%}$ ) and Capital Retention Ratio (CRR) — provide a concise, complementary view of a protocol-owned liquidity program:

Dimension	KPI	What it answers	Management value
Upside (user benefit)	$\text{LDE}_{1\%}$	"How much low-slippage depth do end-users receive for every dollar we deploy?"	Quantifies the pool's effectiveness as a market-making resource, directly tied to trading experience and on-chain volume.
Downside (treasury cost)	CRR	"How costly to the protocol (through capital dilution) is the service provided to the end-users?"	Isolates the economic drag of impermanent loss, signalling when range width, inventory controls, or rebalance cadence need adjustment.

Together, $\text{LDE}_{1\%}$ and CRR form a balanced scorecard:

$\text{LDE}_{1\%}$ tracks the utility delivered to traders.
CRR tracks the cost borne by the protocol.

Monitoring both KPIs side-by-side allows stakeholders to weigh the market-depth upside against the capital-preservation downside, enabling data-driven decisions on parameter tuning, deployment size, and overall strategy viability.