Background on CEX Copy Trader Features
Many CEXes have a “copy trader” feature available on their platforms (MEX, Pionex, many others I’m sure). They have leaderboards with the most profitable traders, and other traders can copy their trades through this feature. The system will automatically place trades that copy what the trader being copied is doing. For simplicity, henceforth I will refer to the user that is being copied as the “trader” and the person copying the trader as the “copier”.
The trader doesn’t need to do anything other than to gain visibility on leaderboards for copiers to copy them. The system will copy trades on the copiers’ behalf, when copiers utilize the feature. Also, traders will benefit from copiers copying their trades, and receive a commission. The system may also allow traders to set their commission fees. The platform will of course also take a fee for the copy trader service.
I’m not sure if there are any order book / perpetual DEXes on Solana that implement this feature, but they are quite prevalent in CEXes, probably because CEXes tend to have higher volume. I think DEX order books could really benefit from such a feature. Side note: this would be an awesome feature for Jupiter to implement as well, with limit orders.
Of course, implementing a feature like this requires very accurate P&L analytics. Good CEXes have P&L analytics in droves. A DEX should also be able to just query the blockchain (directly or via analytic services like Dune or Flipside) to obtain good P&L metrics for users.
P&L Tracking on Meteora
We need to start gathering very accurate metrics on P&L, denominated in USD. We need to track fees & liquidity in USD for MET points anyway, so let’s kill two birds with one stone and really hone in on accurate P&L tracking. LPs want and need P&L tracking anyway. This should be a high-priority for Meteora, and I would imagine the team is working on this anyway. P&L tracking should be the job of the platform UI, not the job of users doing a lot of manual error prone work with spreadsheets. Computers should do work for users. Users shouldn’t have to do work for computers.
With P&L tracking, we can then create a P&L leaderboard to implement a copy LP feature. P&L leaderboard should be % return based, not dollar based, since whales can easily generate a lot in fees on a small % return. There of course would need to be some minimum capital deployed as well to make the leaderboard, because there will be some minnows making huge % returns on a small amount of capital. There may also be some time-based parameters, because LPs may come and go, and someone at the top of the leaderboard may not even be LPing anymore. There should also be filters by tokens/markets.
P&L tracking in the app is a must-have for all LPs anyway. I don’t think Orca nor Radium have this, and if Meteora is a first mover in providing great P&L status to LPs, it will be a boon. I think this alone would attract a lot of LPs to the platform.
Open transactions would have current P&L values based on the opening price, opening asset mix, current price, and current asset mix. Closed transactions would calculate the P&L based on opening/closing asset values. Claimed fee revenue should be based on the value at the time it is claimed (same as it is now in the UI). We will also need to be able to easily roll up P&L stats to the pair level, and total wallet/account level, and present that data in the UI.
Another side note: I would love to see a claim/swap to USDC/USDT feature. Then the claimed fees would essentially always be the same as the USD value displayed in the UI. Claimed fee value can be misleading for assets that make big moves up or down from the time they are claimed, if the LP holds and doesn’t trade them. The claim fee swap should happen through Jupiter, not the pool (if USDC/USDT is one of the pool assets), to ensure the best price. If a pool is shallow, performing a claim/swap could have high price impact, so it’s best done through Jupiter.
Copy LP Feature on Meteora
I propose we create a similar product to copy trader functionality on CEXes but for LPing on DLMMs. I don’t think anyone has ever done this on any blockchain. I think the first mover advantage with this feature would be tremendous. People would flock to the platform and utilize the copy LP functionality, and I think the fees Meteora places on the feature would be a gold mine for LPs with a following, as well as the DAO treasury. If LPs with copiers generate a big enough following, they could end up making more from copier commissions than from their own LPing activities. Of course, copiers would also earn MET points on all their copying activity.
Seasons on Meteora
If we build the P&L tracking and leaderboards properly, it could also become the basis for “seasons” on Meteora, for future rounds of MET points / token airdrops. Commissions earned by LPs from copiers could also generate bonus points, creating healthy competition to become a LP with a following of copiers.
Vault Implementation
The LP positions would be treated like actively managed vaults, and from a technical perspective could be implemented similarly to Kamino vaults. The vault owner would manage all copier funds via a vault, as well as their own funds. They become an LP fund manager. These actively managed vaults will outperform Kamino vaults by a wide margin.
The vaults would be created at a token pair level, not a Meteora market level. They should be allowed to use any bin step / % fee pool for the pair they want. If they’re actively managing, they could work in a low bin-step, and if they’re chilling out or sleeping, they can move it to a higher bin step pool. They could even hold them in no pool, and put them into the Meteora vaults until they’re ready to redeploy back into DLMMs (for assets in the pair that are available in Meteora vaults).
The claim/swap feature shouldn’t be implemented in vaults, because it could potentially have a high price impact even if it takes place through Jupiter. If LP managers want to shift their mix of assets, they’ll need to do it via concentrated DLMM positions. Maybe eventually some kind of claim/DCA swap to USDC/USDT could be implemented to reduce the price impact of swapping fees earned.
Permissioned to Permissionless
Initially, this will be piloted in a permissioned fashion. Only those at the very top of the leaderboard will be considered for the pilot, and we start with SOL-USDC. The top LPs on the leaderboard with SOL-USDC would be eligible to become LPs for the pilot (maybe even just the #1 to start). It will be run as a contest, promoting healthy competition, and likely increasing liquidity and volume on all SOL-USDC DLMMs.
Assuming success with the SOL-USDC pilot, we could bring on more LPs at the top of the SOL-USDC leaderboards to manage their own vaults. We also open it up to other high volume pools, maybe JUP-SOL, JLP-SOL, etc. Then we add some high-volume meme tokens like WEN.
Eventually, it would go permissionless. A lot of successful LPs are doing well with the new meme tokens that pop up every day, and these would drive additional volume/fees. Of course, with higher rewards comes higher risk as well. We should eventually include some sort of risk/reward rating system, to keep copiers informed as to what they are getting themselves into when they’re copying an LP.
Why This Will Work
Traders on CEXes do stupid shit sometimes. They also do it with leverage, and that can make copy trader results on CEXes disastrous for copiers. Since there’s no leverage on Meteora, it eliminates that sort of risk for copiers. This is pure opinion here, but I also think that on the whole, successful LPs are better at managing risk than successful CEXers. Copiers on Meteora Copy LP will be more successful in the long run than copy traders on CEXes.
I think this feature also presents a tremendous opportunity for degens to earn passive income, and the passive income investor market is huge. There are tons of people that want to “just stake” and expect their money to magically grow. There are also many degens that buy and hold who would also benefit tremendously from this. This feature will go viral with everyone touting how awesome it is, and Meteora will overtake Orca and Radium combined. It’s also going to provide sustainable revenue for the Meteora support team and DAO treasury.