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Dearest Bankless Nation,
Uniswap V3 launched
on mainnet a month ago.
And it’south already doing more volume than Uniswap V2.
V3
featured some massive improvements to the protocol—such every bit the introduction of concentrated liquidity for meliorate upper-case letter efficiency.
And the capital efficiency isn’t just a little better—Uniswap V3 is similar 4,000x more capital efficient. This means that your money is existence put to work more efficiently.
You can brand more than money as a liquidity provider in Uniswap V3.
Wait who earned a 12% render in v days with his
GTC
drop…
But providing liquidity to V3 isn’t as simple every bit it was before. From setting your price ranges, to using the proper fee tier, to having an NFT to represent your LP position, it tin can be overwhelming for new users.
At that place’southward a lot to sympathise with Uniswap V3.
So we had William interruption it down for us.
Let’due south figure out how to make money in the newest version of Uniswap.
– RSA
P.Due south.
Earn in Kyber.
Speaking of earning liquidity fees…Kyber but launched its
Dynamic Marketplace Maker (DMM)
and yous should endeavour information technology out. Alpha Leak: KNC rewards coming shortly! 👀
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Guest Writer:
William 1000. Peaster, Bankless correspondent and
Metaversal
writer
Uniswap—ane of the leading decentralized exchanges on Ethereum—released its latest protocol upgrade, Uniswap V3.
At Bankless we explore the frontier, and Uniswap V3 is the tip of the spear when it comes to learning new things in DeFi. In this tactic, we’ll dive into how to navigate this new V3 organisation and how you can earn money as a Uniswap V3 liquidity provider (LP).
-
Goal:
LP on Uniswap V3 -
Skill:
Intermediate -
Effort:
Empathise Uniswap V3 and supply tokens -
ROI:
Trading fees + experience as one of the first LPs for V3
🧮
Want to estimate how much y’all’ll earn from trading fees?
This calculator
from Flipside crypto is
Uniswap
is a protocol for decentralized and permissionless token swaps on Ethereum. The project get-go started grabbing attention when it first launched in Nov 2018 as crypto traders trialed the protocol and its ETH/ERC20 liquidity pools.
The game inverse in May 2020 when the Uniswap team launched Uniswap V2, a key component in the now fabled DeFi Summertime 2020. The V2 upgrade was highly optimized over V1 and allowed for unprecedented possibilities in DeFi—similar ERC-20 to ERC-20 liquidity pools. And traders took notice!
📺
Why Uniswap V3?
Sentry our ep w/ Hayden Adams founder of Uniswap to acquire more than
Throughout the remainder of 2020 and through the beginning of 2021, Uniswap V2 saw truly impressive levels of activity. The exchange protocol had done over $200B volume to appointment, then it’s already rivaling volume levels of major centralized crypto exchanges.
Peachy right?
This brings u.s.a. to Uniswap V3. The core team started designing V3 before V2 was fifty-fifty released, so this upgrade has been in evolution for some time. V3 launched on Ethereum mainnet earlier this month and it packs a serious dial.
Here’southward why:
Most tokens trade within given price ranges. Uniswap V2 is a marvel of engineering science, yet its users provide liquidity evenly forth all of its markets’ toll curves, which leads to capital inefficiency. This is where Uniswap V3 is innovative. The new protocol is vastly more efficient with the introduction of concentrated liquidity—the ability for LPs to provide liquidity inside specific price ranges.
Let’due south say you’re looking to trade the USDC/USDT pair. On V2, nosotros can just spitball and hypothetically assume the vast bulk of this pair’s trading occurs within the $0.98 to $1.02 price range. All the uppercase within the V2 pool outside of this price range is basically simply sitting idle.
Merely with V3, the big reward for LPs is they can actually
cull
what price ranges they want to supply liquidity for. In the case of the example to a higher place, V3 LPs can direct target the aforementioned cost range so they know their liquidity is being put to the nearly efficient use possible and thus earning the highest amount of trading fees. That’s where the name
concentrated liquidity
comes from!
Accordingly, the ensuing advantages of V3 include:
-
4,000x optimization in majuscule efficiency over V2, which allows LPs to earn more than for supplying upper-case letter while also facilitating more than efficient execution prices for traders (
better trades than CEXes for example
). -
Optimizations for LP flexibility, meaning LPs can create V3-centric portfolios that can be heavily exposed to their assets of choice while also mitigating downside cost risks.
-
Optimizations for single asset liquidity provisioning
(eastward.yard. supply 100% ETH instead of 50% ETH and l% DAI
) along price ranges, in other words above or below the electric current spot prices.
In Uniswap V1 and V2, you receive fungible ERC-20 tokens representing your liquidity position in the puddle. But in V3, LPs receive not-fungible tokens (NFTs) that stand for their Uniswap V3 liquidity positions. Every bit explained in the
V3 mainnet post:
“
The pool interface now supports the creation of Uniswap v3 positions with multiple fee tiers and concentrated liquidity ranges. Each position is represented as an NFT and comes with a unique piece of on-concatenation generative art. Expect out for rare sparkles!
”
NFTs brand it piece of cake to stand for LP positions in given cost ranges. This marks a image shift for DeFi which has normally relied on fungible ERC-20 LP tokens to represent LP positions.
With that in heed,
don’t become selling your Uniswap V3 NFT on marketplaces like OpenSea or Rarible for less than information technology’s worth in literal liquidity
! We’ve already seen 1 or two poor souls practise this—likely unknowingly. Don’t exist like them.
Your NFT is claimable for the assets you deposited in the pool. Exercise non sell it for less than it’s worth!
More Bankless resources on Uniswap V3
:
-
🚨
Alpha Alert: Uniswap V3 -
📺
Uniswap V3 (Layer 2 Rollups on Optimism, Concentrated Liquidity) -
📺
ROLLUP: Uniswap V3 | BTC in Bank Accounts | Bankless DAO
Because Uniswap V3 relies on full-bodied liquidity, information technology’s incumbent on you equally a prospective liquidity provider to effigy out the toll range you want to provide liquidity for and then move forrard from there.
If you lot want to start from scratch, here’s
how y’all do it:
-
Kickoff navigate to Uniswap.Exchange and select your pair of pick through the “Pool” dashboard.
-
Pick your desired fee tier, e.k. from 0.05% LP fee to 1% LP fee.
-
Next you’ll have to pick which price range yous’ll want to provide liquidity within.
As explained in the
Uniswap User Guide:“
Depending on the fee tier selected, the interface will offering the power to adjust prices in either 0.x%, 0.60%, or ii.00% increments. Manually entered prices will automatically adjust to the closest associated price tick.If the price moves outside of the LP’s specified range, their position volition exist full-bodied in i of the 2 assets and not earn trading fees until the price returns to their range.
[…] A narrower price range has the reward of being more than capital efficient. As an example, a v3 LP in a stablecoin-stablecoin pool can provide the aforementioned liquidity depth in the $0.99 — $i.01 price range every bit a v2 LP with just 0.5% of the capital
.” -
Determine how much uppercase you want to allocate, approve the V3 router contract, and then deposit your majuscule with a transaction. Once that transaction is complete, you’ll be serving as a Uniswap V3 LP.
-
At this point you’ll receive a Uniswap V3 NFT LP token. Guard information technology closely! This is how you’ll represent and redeem your underlying liquidity pool position whenever you please.
The Uniswap team has made information technology easy for Uniswap V2 and SushiSwap LPs to migrate their positions over to Uniswap V3. If you’re interested in migrating, here’s what yous demand to exercise:
-
Go to the Uniswap “Pool” dashboard, which will automatically find your Uniswap V2 or SushiSwap positions. Click on your puddle of choice.
-
Select your desired fee tier, e.g. from 0.05% to 1%.
-
Set your price range, and go along in mind that more than narrow cost ranges are more than efficient.
-
Approve the Uniswap V3 router contract, so that it can put your LP tokens to utilise. In one case the approval transaction is consummate, you’ll be fix to migrate your liquidity with a last transaction!
One time confirmed, you’re all prepare. You’re now providing liquidity to Uniswap V3 and making some serious cash from trading fees due to the protocol’due south substantial majuscule efficiency gains.
Uniswap V2 helped boot off the DeFi Summertime last year.
Will Uniswap V3 do the same for summertime of 2021? Perhaps a deployment on one of the new fancy Layer 2s like Optimism and Arbitrum will ignite the fuel for
DeFi Summer: Layer 2 edition…
In the very least, it’s clear that Uniswap V3 represents a hyper efficient automated market maker (AMM) design. There’s a decent risk this superior infrastructure translates into a wild summertime of trading activity from here, particularly as Layer 2 comes into the fold.
Either way, Uniswap V3 is going to be a big part of the DeFi equation moving frontwards!
-
Check out the new
Uniswap V3 trading dashboard
👀 -
Level up on Uniswap V3 with these Bankless Resources:
-
🚨
Alpha Alert: Uniswap V3 -
📺
Our total episode with Hayden Adams founder of Uniswap -
📺
Uniswap V3 (Layer two Rollups on Optimism, Concentrated Liquidity) -
📺
ROLLUP: Uniswap V3 | BTC in Bank Accounts | Bankless DAO
-
William M. Peaster is a professional person writer and creator of
Metaversal—a new Bankless newsletter focused on the emergence of NFTs in the cryptoeconomy. He’s as well recently been contributing content to DeFi Pulse Farmer, Josie Bellini, and beyond!
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Not fiscal or revenue enhancement communication.
This newsletter is strictly educational and is non investment advice or a solicitation to purchase or sell whatsoever assets or to make whatever fiscal decisions. This newsletter is non tax advice. Talk to your accountant. Practise your own research.
Disclosure.
From time-to-fourth dimension I may add links in this newsletter to products I use. I may receive committee if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our
investment disclosures hither.
Source: https://newsletter.banklesshq.com/p/how-to-make-money-with-uniswap-v3