Fluid's ETH-USDC Pool Suffers $8.5M Losses Due to Volatility

Fluid’s ETH-USDC pool, launched in December 2024, has faced significant challenges, recording more than $8.5 million in cumulative losses since its inception. The primary issue stems from a rebalancing mechanism that underperformed during periods of high volatility and appears to be systematically unprofitable, even outside of rebalancing windows. The pool was designed to auto-rebalance liquidity when ETH’s price moved beyond ±10%. While this design worked well during periods of modest volatility, the recent price fluctuations of ETH, dropping from around $3,800 to $1,560 and then rebounding to $2,400, led to substantial losses for liquidity providers (LPs). The rebalancing process dragged down LP capital, and arbitrage opportunities on centralized exchanges (CEX) and decentralized exchanges (DEX) overwhelmed any trading fee income received by LPs.

The markout data reveals a consistently negative LP profit and loss (PnL), contradicting the assumption that fee income from the concentrated liquidity automated market maker (AMM) model would offset rebalancing-related losses. Instead, the design structure allowed for maximal extractable value (MEV) trades to bleed LP value, even under normal conditions. Since the May 11 governance post detailing the problem, Fluid co-founder Samyak Jain has been addressing the criticism, drawing parallels to the early days of Uniswap v3. The team argues that short-interval markouts can be misleading and do not fully account for fee accrual or LP lifecycle behavior, referencing prior commentary from Uniswap researchers.

Fluid’s planned v2 upgrade, targeted for June or July, aims to introduce dynamic fees, permissionless pools, and custom LP ranges. The team also proposes distributing 500,000 FLUID tokens (0.5% of supply) over a year to affected ETH-USDC LPs, plus $400,000/month in rewards until DEX v2 launches. Additionally, they suggest narrowing the rebalance range from ±10% to ±7.5% to increase fee accrual per unit of liquidity, although this would also increase rebalancing events and potential losses. Critics, including Paradigm researcher Dan Robinson, argue that concentrating liquidity more would exacerbate both losses and variance, making it a risky short-term fix.

Despite the challenges, Fluid acknowledges the issue publicly and emphasizes that correlated pairs, such as cbBTC–WBTC, have performed well. The team highlights their own $1 million LP position as evidence of their commitment to resolving the issue. However, the damage to LP trust is significant, and whether DEX v2 can reverse this dynamic will be a true test of Fluid’s unified architecture. The ETH-USDC pool serves as a cautionary tale, illustrating how capital efficiency can cut both ways, especially when market volatility meets rigid strategy design.