Why APR Alone Is a Dangerous Metric for Liquidity Providers

Many liquidity providers choose pools based on advertised APR. The problem is that APR often spikes during unstable conditions — exactly when LP risk is highest.

APR is one of the most misunderstood metrics in DeFi. LPs often chase high APR without realizing that APR frequently spikes during the worst conditions.

Why APR spikes

• Volatility increases trading activity (fees up)
• Price breaks ranges (LPs drop out, liquidity thins)
• Fee APR looks great—right before risk hits

APR does not equal profitability

Even strong fee generation can be overwhelmed by:

• impermanent loss
• range inefficiency (out-of-range time)
• bad timing (deploying into regime shifts)

How LP Regime reframes APR

LP Regime starts with market structure:

• Is the market range-dominant?
• How often does it break the range?
• Is instability increasing month-to-month?

How to use APR correctly

• First check if price stayed in range most days.
• Then evaluate how often the range broke.
• Only then use APR as a secondary signal.

APR becomes useful only after the regime is compatible with disciplined liquidity provision.

Conclusion

APR is not the decision. Regime quality is the decision. APR is an input—only after structure qualifies.

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