Liquidity pools can be a very profitable way to invest in Defi. But it can also be more complicated, and risky than simply lending or staking your funds. However, you can mitigate the risk by investing in stable coin pairs, and using some of the tools mentioned below to track and monitor rates of return. Currently, Dex volumes are exploding as per this tweet from Hayden Adams, of Uniswap.
Automated Market Making - see good article on liquidity pools from Medium - A Deep Dive into Liquidity Pools
Bonding curves - supports primarily stablecoins, but has recently added xBTC options as well. See the previous articles in my defi blog about curve.fi, and also xBTC on eth alternatives. These pools have good rates or return, and are easy to use, and track.
Pools - y.curve.fi, Busd.curve.fi, Compound.curve,fi, Pax.curve.fi, RenBTC.curve.fi, tBTC.curve.fi
From the Uniswap site: "Earn a portion of Uniswap’s 0.3% trading fees on any ERC20 token pair by providing liquidity split 50% between ETH and 50% between the target ERC20 token"Supports most ERC20 coins. I am using Eth + Dai, Wbtc, Link, Pax gold etc. Read full Uniswap Liquidity Provider Tutorial
V2 - There are a lot of tools which support V1, and they are all adding support for V2, which has a lot of new features. The new version doesn't require Eth as half of every pair, and supports any ERC20 combination. The user interface is better, and you can even create your own pools, if the one that you want doesn't exist yet. There is a lot of info in their latest blog post about the new features. For now there is still more liquidity on V1, but in my opinion, the new version is much better, and liquidity is increasing at a rapid rate, as people upgrade from V1. So, I would encourage you to use V2 as soon as possible. I have tested with some small amounts, and it worked well for me.
Similar to Unipool but supports multidimensional pools. You can either deposit directly on the Balancer portal or 1inch exchange earn section (see below). Unfortunately, they have experienced a couple of hacks recently, so I would be careful. Here is some info on the larger one.
They were the first ones to provide automated market making, which has since been adopted by a lot of other players in the Defi Community, with variations and improvements. There are already a lot of articles that explain bancor V1, so I will just list them here instead of repeating the information:
- How to Add Liquidity on Bancor ,
- User-Generated Liquidity Pools: New Self-Service Portal For Creating On-Chain AMMs ,
- Bancor Zaps ⚡️
Bancor V2 - Uses the Chainlink price oracle to reduce/eliminate the problem of impermanent losses and slippage. This project has a lot of interesting features, but I couldn't test it since it not available yet.
Synthetix platform and liquidity pools
Best tools for tracking, monitoring and transacting Liquidity across Providers
Zapper.fi - Defisnap and Zap projects have recently merged. The new product has some great information, and they will be adding ROI data. The invest tab allows you to deposit to multiple liquidity pools, and also several tokens. It also lists the pool info by liquidity, transaction volume, and Vol/Liq%. Just sort it by this last column to see the best pools to deposit into.
1inch - Supports deposits, withdrawals, checking liquidity and rates across multiple providers. Deep support for Uniswap V2, and allows you to supply single coins instead of having to deposit both sides of a pair
Other good tools to track liquidity and profitability of Liquidity Pools (from my previous blog post)
Pools with more liquidity will be more stable, and have lower slippage. But you will also get a smaller share of the total fees on transactions. You should also look at the transaction volumes, and total fees collected by the pool to determine which ones to invest in.
I hope you have found this update on Liquidity pools to be helpful. New features are being added all the time, and it is great to see so many Defi projects working together. As usual, any comments or feedback is welcome.