No moons or easy money but hard work inside...
You realize that easy and fast money in crypto is a gamble or even a scam. But you don't know what to do and how to earn in this long bear market? Uniswap V3 gives you a unique opportunity to make money by providing concentrated liquidity.
Quick guide on how to provide liquidity on Uniswap V3
https://support.uniswap.org/hc/en-us/articles/7423194619661-How-to-provide-liquidity-on-Uniswap-V3
Some of you may have already tried to provide liquidity but decided that it was very difficult and led to losses, some of you lost money on it and do not believe anymore. This is normal because if it were easy everyone would be doing it. Let's try to figure out how we can provide liquidity and be profitable.
Uniswap V3 has the unique feature of providing concentrated liquidity in a defined price range. The smaller the price range, the more profits you make, and the greater the risk that when the price moves out of the range you set - you will stop making profits. You can balance the risk/profit at the level you want. And that's what's really great.
The main mistake beginners make is to provide liquidity in stablecoin pairs. Like WETH/USDC, WETH/USDT and others. You think you can have a big APR and more stability, because stables are not volatile and your liquidity volume will always remain the same? If you look at the pools volume (https://info.uniswap.org/#/pools), the stablecoin pools are the biggest. Large volume of daily trades and large volume of liquidity provided. Good idea, it's just a sad fact that it doesn't work.
Why is it a bad idea to provide liquidity in pools with stablecoins?
1. Impermanent loss (More: https://academy.binance.com/en/articles/impermanent-loss-explained)
In short, impermanent loss occurs when the prices of your assets in the pool start going in different directions, increasing the % of volatility.
In the WETH/USDC pool, all the volatility is in the volatility of ETH, because the second asset is stable. Then, for example in the APE/WETH pool, there is a correlation between the APE price and the ETH price, so when the ETH price rises, the APE price will also rise and the volatility will be lower (and impermanent loss also will be lower)
2. Liquidity growth
DEX with Automatic Market Maker mechanism work according to the formula X * Y = K (Constant), which implies that your liquidity is always a constant as long as the price is within your position range. In a pool with stablecoin, your liquidity is represented in USD since stablecoin is pegged to USD. While in the APE/WETH pool your liquidity is represented in tokens (APE and WETH). This means that during a bull run when the price of ETH and any other altcoins will rise, you can profit from the growth of your liquidity in USD equivalent.
But you will NOT get profit from the liquidity growth in the stablecoin pools!!!
For example the price of ETH is $1000, and you set the price range for liquidity providing at 20% from $900 to $1100. If the price of ETH goes up and becomes 1101, all your liquidity will be converted into stablecoins and you will not profit from further growth of ETH, but will get a small IL.
But if the price of ETH goes down, all your liquidity will turn into ETH at $900 and will continue to decrease as the price of ETH goes down. This way your profit is limited to your LP fees and your loss is theoretically infinite until you reach zero. In pools with stablecoins to get a noticeable profit, you have to set a very narrow range and increase your risk.
In APE/WETH pool, for example, ETH - $1000, APE - $5 price of two assets ($1000/$5) - 200, your range is the same 20% from 180 to 220 (roughly)
Even if ETH goes up to $10k and APE goes up to $50, you'll be making LP profits because your price stays in the 180-220 range ($10000/$50 = 200), plus your liquidity in USD equivalent will also go up 10x.
The opposite is also true, if both assets go down, your liquidity decreases. But if you are bullish on crypto and here for a long time, it shouldn't be a problem, because by providing liquidity, you accumulate more and more tokens, and when they reach ATH you will get your profit.
3. Impact of IL and liquidity growth
If ETH moves it causes an impermanent loss in the WETH/USDC pool. In pools with altcoins, you usually get liquidity growth from the correlated asset growth, so you don't have to worry about IL.
If both assets in the pool grow by the same amount of %, or at least within the volatility you set, that means you get both LP fees and profits from their growth as if you were just holding them in your wallet!
I hope you are now convinced that providing liquidity for stablecoins is much less profitable than for altcoins? Another argument against stablecoins is that these pools have the most MEB and JIT bots activity, which steal your LP profits.
Altcoins
When providing liquidity, the main risk is if token prices start to diverge. For example, your altcoin will start to drop significantly in value, while ETH will be stable or even growing.
The main challenge is to choose altcoin pool with good liquidity, and calculate the minimal volatility range to maximize profits. I found only a few calculators for Uniswap V3 pools but all of them provided only basic limited functionality, which is not enough for precise pool analysis.
That is why I created a new Uniswap V3 pool calculator that was able to meet my approach to pool analysis.
Let's see what we can get in a deep bear market in pools of good reliable altcoins like APE and IMX. This data is BEFORE the pump and includes days of holidays with minimal trading activity.
In short, we can get 0.7% fee per 24h on 15% volatility in APE/WETH 0.3% and WETH/IMX 1% pools, or 1% fee per 24h in APE/WETH 0.3% on 10% volatility.
As you can see this volatility of 10%-15% covers almost the entire month. If you want even more profits you can make even narrower price ranges and rebalance your position every few days.
Here is an example of the actual income of my position in IMX/WETH - BEFORE PUMP! The returns are much higher now because of the post-pump liquidity growth.
The calculator provides, in addition to the main position calculation function, data on current positions and fees in order to compare them with the calculated ones. As well as many useful features watchlists and dashboards with many insights to find profitable pools.
And finally. Shitcoins :)
Providing liquidity in shitcoin pools can generate very impressive profits. However, you must understand the high risks and of course DYOR before investing in shitcoins.
Here is a short list of the top Uniswap V3 pools for profitability. This list is updated every time you reload the page analyzing large amounts of data from Uniswap.
SHITCOINS!!! DYOR!!! SHITCOINS!!!
SHITCOINS!!! DYOR!!! SHITCOINS!!!
Okay CRV is not a shitcoin, but now performs well :)
Now I'm happy with the calc, it allows me to choose good pools, create positions properly and be profitable. And I'm happy to make it public for you. The conditions are clear. APE and IMX pools are free for testing. After a simple registration you have 6 hours of FULL access to test any pools. Then you have to decide to buy an account, which costs $20-$30 a month (such low prices for the bear market).
Link - https://imxflow.com/univ3lp/
Any questions about providing liquidity and the calculator please ask in the comments.
Happy LPing and profit!
