Providing Liquidity on Uniswap | 40+ Day Experiment Results

Providing Liquidity on Uniswap | 40+ Day Experiment Results

By costanza | costanza | 10 Jun 2021


With the gas costs that have come down quite a bit, I finally pulled the trigger to provide some liquidity on Uniswap to test out if it's possible to get some good solid results this way. These are the results...

I'm quite a fan of CeFi lending on BlockFi & Celsius (See latest Passive Crypto Earnings Report) and Gambling Dapp Dividend coins like Wink & SBET (See Latest Weekly Dividends Report) but also see the potential in providing some liquidity on Uniswap as the earnings come directly from fees generated by traders. The potential impermanent loss combined with high Fees on Ethereum not making it all worth it always scared me though.

One of the coins I took a gamble on as my Crypto Insurance play is Etherisc Decentralized Insurance Protocol (DIP) which has a connection to Chainlink and is still very low in Market Cap. It was actually the first coin I bought using Uniswap and it had been sitting in my wallet as a longer-term hold for quite a while. So I pulled the trigger putting it to the test providing it as Liquidity. Now 40+ days later I have a much better view on what can be expected.

I had 16000 DIP which by the end of April was equal to 1.35 ETH which I all provided to the pool giving me around 0.25% of it. I was fully willing to handle fluctuations in the number of coins between both.

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Ethereum outperformed DIP during the period which lowered my ETH from 1.35 to 1.085 and my DIP bag increased from 16000 to 20365. During the 40+ days I earned 65.10$ in trading fees which cover the impermanent loss due to price switching. Adding the initial gas fees and the fees needed to get my funds out of the pool or Migrate to Uniswap V3 which I haven't done, it has been a zero-sum game where I didn't really lose or earn something so far.

Gap ETH vs DIP

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Value Total ETH vs VALUE Total DIP

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Earned Fees Dollar

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Conclusion

From what it looks like based on just thus 1 trading pair experiment, providing liquidity on Uniswap won't exactly make you rich but it does allow you to earn something based on actual revenue that is being generated. (unlike the hocus pocus many other DeFi platforms seem to be based on). For now, I will keep the trading pair in mind because I really don't care so much about the ups and downs. Actually the more volatility in the market, the higher the generated fees should be. For now, providing liquidity is not something I will be doing for more coins though and the merging into Uniswap V3 really makes it all more confusing.


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