Dual-Asset Provision (e.g., Uniswap V2, Curve pools) excels at capital efficiency and predictable returns for stable pairs because it requires equal value of both assets in a pool. This model minimizes impermanent loss for correlated assets and is the bedrock of high-TVL protocols like Curve Finance, which holds over $2B in stablecoin pools. However, it demands significant upfront capital in two tokens and exposes LPs to asymmetric loss if assets diverge.
LABS
Comparisons
Single-Sided Liquidity Provision vs Dual-Asset Provision
A technical analysis comparing the capital efficiency, risk profile, and operational complexity of single-sided (vault-based) and traditional dual-asset liquidity provision strategies for DEXs.
Chainscore © 2026
introduction
THE ANALYSIS
Introduction: The Evolving Landscape of DEX Liquidity
A data-driven comparison of single-sided and dual-asset liquidity provision models, highlighting their distinct risk-reward profiles and ideal use cases.
Single-Sided Provision (e.g., Balancer Boosted Pools, Gamma Strategies) takes a different approach by allowing deposits of a single asset, often via automated vaults. This strategy dramatically improves accessibility and simplifies user experience, attracting a broader base of passive capital. The trade-off is typically lower base APY and reliance on complex, often centralized, yield strategies that can introduce smart contract or custodial risk, as seen in protocols managing billions in single-asset TVL.
The key trade-off: If your protocol's priority is maximizing deep, stable liquidity for correlated assets with transparent fee mechanics, choose a dual-asset AMM like Curve or a Uniswap V3 concentrated pool. If you prioritize user accessibility and onboarding ease for a wider audience willing to accept strategy risk for convenience, choose a single-sided vault solution integrated with Balancer or a yield aggregator like Yearn.
tldr-summary
Single-Sided vs. Dual-Asset Liquidity
TL;DR: Core Differentiators
Key strengths and trade-offs at a glance for protocol architects designing incentive models.
01
Single-Sided Provision: Capital Efficiency
Lower barrier to entry: Users deposit only one asset (e.g., ETH into a Uniswap V3 ETH/USDC pool). This matters for attracting retail liquidity and simplifying onboarding for new protocols like Pendle or Aave's GHO pools.
02
Single-Sided Provision: Impermanent Loss Mitigation
Reduced risk vector: Providers are only exposed to the volatility of the single deposited asset, not a pair. This matters for stablecoin-focused pools (e.g., Curve's crvUSD) or when bootstrapping liquidity for a new token.
03
Dual-Asset Provision: Higher Yield Potential
Access to full fee revenue: Providers earn on 100% of swap volume between the two assets. This matters for established, high-volume pairs (e.g., ETH/USDC on Arbitrum) where trading fees outweigh IL risk.
04
Dual-Asset Provision: Deeper Liquidity & Better Pricing
Superior market stability: Requires equal value of both assets, creating balanced pools that minimize slippage. This is critical for DEXs like Balancer or Maverick Protocol that compete on execution quality for large trades.
05
Single-Sided: Protocol Complexity & Cost
Requires sophisticated mechanisms: Protocols must manage the other side of the pair (often via external market makers or yield strategies), adding smart contract risk and operational overhead, as seen in early versions of Bancor.
06
Dual-Asset: Capital Lockup & Opportunity Cost
Double the commitment: Locks two assets, increasing exposure to impermanent loss and forgoing yield elsewhere. This is a significant hurdle for liquidity in long-tail asset pairs on SushiSwap or PancakeSwap.
HEAD-TO-HEAD COMPARISON
Feature Comparison: Single-Sided vs Dual-Asset Provision
Direct comparison of capital efficiency, risk, and yield mechanics for liquidity providers.
| Metric | Single-Sided Provision | Dual-Asset Provision |
|---|---|---|
Capital Exposure | Single asset (e.g., ETH) | Two assets (e.g., ETH/USDC) |
Impermanent Loss Risk | None | High (Price divergence risk) |
Capital Efficiency | Lower (Requires external borrow/lend) | Higher (Direct pool pairing) |
Typical Yield Sources | Lending interest, protocol incentives | Trading fees, protocol incentives |
Entry Barrier | Low (No paired asset needed) | Higher (Requires 50/50 asset split) |
Protocol Examples | Aave, Compound, Lido | Uniswap V3, Curve, Balancer |
Best For | Long-term asset holders, yield on idle assets | Active LPs, market makers, fee maximization |
pros-cons-a
Single-Sided vs. Dual-Asset Provision
Pros and Cons: Single-Sided Provision
Key strengths and trade-offs for liquidity providers at a glance. Choose based on capital efficiency, risk profile, and target protocol.
01
Single-Sided Provision: Key Pro
Lower barrier to entry and capital flexibility: Users can provide liquidity with a single asset (e.g., only ETH or only USDC). This is critical for protocols like Lido (stETH) or Aave (aTokens) where the deposited asset is yield-bearing. It matters for users who are bullish on one asset or want to avoid the complexity and impermanent loss risk of managing a 50/50 pair.
02
Single-Sided Provision: Key Con
Higher protocol dependency and smart contract risk: Liquidity is often pooled into a single, protocol-managed vault (e.g., Curve's factory pools for stablecoins). This concentrates risk in the vault's implementation and the underlying oracle prices. A failure or exploit in the vault logic can lead to total loss, unlike in a decentralized AMM where LP tokens represent direct ownership of both assets.
03
Dual-Asset Provision: Key Pro
Direct asset ownership and composability: LPs receive an LP token (e.g., Uniswap V3's NFT or Balancer's BPT) that represents a claim on the underlying reserve assets. This token is widely accepted as collateral across DeFi money markets like Aave and Compound. It matters for advanced users building leveraged positions or seeking maximum composability within the DeFi stack.
04
Dual-Asset Provision: Key Con
Impermanent Loss (IL) and capital lock-up: Providing two assets in a 50/50 ratio exposes LPs to divergence loss if the assets' prices change relative to each other. In volatile pairs (e.g., ETH/ALT), IL can exceed fee earnings. It also requires equal value of both assets, locking up more diversified capital. This matters for providers in non-correlated asset pairs or during high-volatility market regimes.
pros-cons-b
SINGLE-SIDED vs. DUAL-ASSET LIQUIDITY
Pros and Cons: Dual-Asset Provision
Key strengths and trade-offs for liquidity provision strategies. Choose based on your capital efficiency, risk tolerance, and target protocol.
01
Single-Sided Provision (e.g., Aave, Compound, Lido)
Capital Simplicity: Deposit a single asset (e.g., ETH) to earn yield. This matters for capital-constrained protocols or users who want to maintain directional exposure.
Lower Impermanent Loss Risk: No exposure to a paired asset's volatility. Critical for long-term holders of blue-chip assets like BTC or ETH who want to avoid selling pressure.
Integration Simplicity: Protocols like Aave use it for lending markets; Lido for staking derivatives. Easier for new DeFi users to onboard.
0%
Paired Asset IL
1-Asset
Capital Lockup
02
Single-Sided Drawbacks
Lower Potential APY: Yield is often limited to borrowing fees or staking rewards. Typically lower than AMM LP fees from high-volume pools like Uniswap v3 ETH/USDC.
Protocol Dependency: Yield is governed by the specific protocol's health and parameters (e.g., Aave's utilization rate, Lido's staking rewards). Less control for the provider.
Smart Contract Concentration Risk: Capital is exposed to a single protocol's codebase, as seen in historical incidents affecting Compound or Maple Finance.
03
Dual-Asset Provision (e.g., Uniswap v3, Curve, Balancer)
Higher Fee Earnings: Capture trading fees from AMM swaps. Top pools (Uniswap v3 ETH/USDC) can generate 10-100%+ APY during high volatility. This matters for maximizing yield on idle capital.
Capital Efficiency (Concentrated Liquidity): Uniswap v3 allows liquidity within custom price ranges. Can achieve up to 4000x capital efficiency vs. v2 for stablecoin pairs.
Composability: LP tokens (e.g., Curve's 3pool LP) are themselves yield-bearing assets that can be used as collateral in protocols like Convex Finance or Yearn for boosted returns.
10-100%+
Potential APY
4000x
Max Capital Eff.
04
Dual-Asset Drawbacks
Impermanent Loss (Divergence Loss): Guaranteed risk when paired assets diverge in price. Can erase fee earnings; a major concern for volatile pairs like ETH/ALT.
Active Management Burden: Concentrated liquidity (Uniswap v3) requires frequent rebalancing or use of manager services like Gamma Strategies. Not a 'set-and-forget' strategy.
Complexity & Gas Costs: Providing, adjusting, and compounding rewards involves multiple transactions. Costly on Ethereum Mainnet without proper batching via Uniswap v4 hooks or layer-2 solutions.
CHOOSE YOUR PRIORITY
Strategic Application: When to Use Which
Single-Sided Provision for Capital Efficiency
Verdict: Superior for concentrated, targeted exposure with lower capital lockup. Strengths: Allows LPs to provide a single asset (e.g., USDC) without needing a paired asset like ETH, maximizing exposure to a specific token's yield or appreciation. This is ideal for protocols like Uniswap V3 where concentrated liquidity can be paired with a stable asset, or for Curve Finance pools where stablecoin LPs avoid impermanent loss (IL). Reduces the barrier to entry and simplifies portfolio management. Trade-off: Often involves higher protocol-specific risk and may rely on external mechanisms (e.g., oracles, lending protocols) to form the other side of the pool.
Dual-Asset Provision for Capital Efficiency
Verdict: The traditional model; efficient for balanced, two-token markets but requires 50/50 exposure. Strengths: Provides deep liquidity for classic trading pairs (e.g., ETH/USDC). Protocols like PancakeSwap and Balancer (for 50/50 pools) optimize for this model, ensuring fair price discovery. Capital efficiency is derived from high fee revenue in volatile, high-volume pairs. Trade-off: Inefficient for LPs who are bullish on only one asset, as 50% of capital is allocated to the counterparty asset, exposing them fully to IL.
SINGLE-SIDED VS DUAL-ASSET
Technical Deep Dive: How Single-Sided Vaults Work
A technical comparison of single-sided and dual-asset liquidity provision models, analyzing their mechanisms, trade-offs, and ideal use cases for DeFi protocols and LPs.
The primary advantage is capital efficiency and reduced impermanent loss risk. Single-sided vaults (like those on Balancer or Aura Finance) allow liquidity providers (LPs) to deposit only one token, which is algorithmically paired with a protocol-owned stablecoin or other asset. This eliminates the need for LPs to source and manage a 50/50 pair, significantly lowering the barrier to entry and exposure to the volatility of a second asset. It's ideal for protocols seeking deep liquidity for a specific token.
verdict
THE ANALYSIS
Verdict and Decision Framework
A data-driven breakdown to guide your protocol's liquidity strategy.
Single-Sided Liquidity Provision (SSLP), as pioneered by protocols like Lido (stETH) and Rocket Pool (rETH), excels at capital efficiency and accessibility because it eliminates impermanent loss (IL) and simplifies the user experience. For example, Lido's ~$30B Total Value Locked (TVL) demonstrates massive adoption by users seeking passive yield on a single asset like ETH without managing a paired asset. This model is ideal for attracting non-DeFi-native capital and providing foundational staking liquidity.
Dual-Asset Provision (DAP), the classic Automated Market Maker (AMM) model used by Uniswap V3 and Curve Finance, takes a different approach by requiring paired assets (e.g., ETH/USDC) to facilitate trading. This results in the trade-off of higher potential returns from trading fees versus exposure to impermanent loss. Protocols like Curve, with its concentrated liquidity design, can achieve deep liquidity for stable pairs with fee APRs often exceeding 5-10%, but LPs must actively manage their price ranges.
The key architectural trade-off is between capital specialization and market-making utility. SSLP protocols are specialized factories for yield-bearing derivatives, while DAP pools are generalized engines for price discovery and swap liquidity. Your choice fundamentally dictates whether your protocol mints a new financial primitive or provides a venue for existing ones.
Consider Single-Sided Liquidity if your priority is: Maximizing deposit simplicity for a specific asset (e.g., a new L2's native gas token), building a composable yield layer (like using stETH across DeFi), or completely shielding users from market volatility beyond the base asset's price.
Choose Dual-Asset Provision when you prioritize: Enabling efficient swaps and price discovery for a trading pair, extracting maximum fee yield from volatile or stablecoin markets, or building a general-purpose liquidity hub where capital efficiency for traders is paramount over depositor convenience.
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