Uniswap has released new research introducing a novel metric called Fee Liquidity-Adjusted Instantaneous Returns (FLAIR). This metric aims to account for the cost and benefit analysis of being an LP, considering factors such as trading fees, market risk, and the sophistication of counterparties.
FLAIR supplements the popular metric loss-versus-rebalancing (LVR) by capturing the dynamic behavior of LPs within a pool. It highlights how LPs enhance competition by allocating capital to pools with higher fee returns, rebalancing liquidity, and strategically deploying liquidity during high-fee periods. LPs that frequently rebalance their positions tend to earn more fees on average, as measured by FLAIR.
The FLAIR metric is designed to measure LP performance over different time periods, allowing existing LPs to evaluate historical performance and prospective LPs to optimize their capital deployment through backtesting.
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