Liquidity providing in Uniswap v3 (1)

Ranges

If you want to add the same amount (or rather value) of both token0/token1 to the pool (like in v2), you have to create a range that is symmetrical around current price. But you have to think in percents, not values! So if price is 150, symmetrical range is 75…300 not 0…300. Such range allows the price go up or down 2x. Just divide and multiple current price by the same amount (2 in this case).

Fee boost

Fee boost is my term for the multiplier applied to fees in some range. You can find interactive calculator for boost in blog post introducing v3.

You’re not the only fish/whale in the pool

You’re not only one who will try to trade in some narrow range. So now everybody is adding liquidity to this range and you have to share your profits with many other LPs.

Volume capture

When you choose some narrow range to provide liquidity, you risk that some of the trades will fall outside this range. For my tests I use “volume capture” a as a term to describe it. Eg. 50% volume capture means that 50% of whole volume during some time was within the range and generated fees. It’s quite obvious that narrow ranges capture less volume. How much less? It depends on volatility and it cannot be predicted, but can be tested on historical data.

Loss boost

When v3 was introduced, Uniswap Team Members talk a lot about how capital efficient it will be and how LP profits can be higher by providing liquidity in range. There was much less talk about the fact that using some narrow range increases impermanent loss by a lot.

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