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Half of Uniswap v3 liquidity providers are losing money: New research

A recent study of Uniswap v3 pools revealed that on average, almost half of the liquidity providers are losing money due to impermanent losses.

Recent research shows that impermanent losses have become an increasing issue for liquidity providers on Uniswap v3. 

A Nov. 17 report by Topaz Blue and the Bancor Protocol found that 49.5% of liquidity providers on Uniswap v3 have incurred negative returns from impermanent loss (IL).

The report highlighted that Uniswap v3 generates the highest fees of any automated market maker (AMM) today, but IL surpasses those earned fees. The research surmised that hodling may have been a better option for liquidity providers.

“The average liquidity provider (LP) in the Uniswap V3 ecosystem has been financially harmed by their choice of activities and would have been more profitable simply holding their assets.”

Impermanent loss is a phenomenon that occurs to liquidity providers on automated market makers (AMMs) when the spot price of the assets they have added to a liquidity pool changes. Since liquidity providers pair two assets together to form a position, the ratio of coins in the position changes when asset spot prices change.

For example, if a user has supplied equal USD values in USDT and ETH to a liquidity pool and the price of ETH goes up, arbitrageurs will begin to remove ETH from the pool to sell at a higher price. This leads to a decrease in the USD value of the user’s position, otherwise known as an impermanent loss.

In this regard, the report states in no unclear terms that there are inherent risks when providing liquidity to Uniswap V3.

“The user who decides to not provide liquidity can expect to grow the value of their portfolio at a faster rate than one who is actively managing a liquidity position on Uniswap v3.”

The pools that were studied accounted for 43% of all of Uniswap v3’s liquidity at the time of the research. In total, the analyzed pools generated $199 million in fees from $108.5 billion in trading volume from May 5, to Sep. 20, 2021.

During that time frame, those pools suffered $260 million in impermanent losses, resulting in $60 million in net total losses.

Of the 17 pools analyzed, 80% saw IL outweigh the fees earned by liquidity providers. Only three pools of those analyzed (WBTC/USDC, AXS/WETH, and FTM/WETH), saw net positive gains. Some pools marked losses well above 50% such as the MKR/ETH where 74% of users reportedly made a loss.

The study also sought to determine whether active strategies would produce different results than passive strategies. An active user adjusts their positions more frequently than a passive user. While the report expected short-term active traders to outperform passive traders, no correlation could be found between shorter-term positions and higher profits.

Related: How to spot a rug pull in DeFi — 6 tips by Cointelegraph

Out of the major time segments analyzed, those who held longer than a month performed best, as almost all time frames lower than a month still saw IL outpacing earnings.

Flash liquidity providers were the only group that saw no meaningful IL.

The report offers a stark conclusion for users who are considering providing liquidity on Uniswap v3. While it does state that a winning strategy could potentially be formulated, expected returns may be “comparable to the annual rates offered by mainstream commercial banking products.”

Voyager’s $1B sale to Binance.US put on hold by US court

Kyber expands to Polygon, announces $30M ‘Rainmaker’ liquidity mining program

The Kyber Network is set to float a $30 million liquidity mining program on both Ethereum and Polygon pools.

Decentralized finance liquidity hub Kyber Network is set to become the next DeFi protocol to enter the expanding Polygon ecosystem.

In a statement issued on Wednesday, Kyber announced the launch of Rainmaker, a liquidity mining program on the platform’s Dynamic Market Maker protocol that will commence on June 30 to mark Kyber’s expansion to Polygon.

According to the announcement, the Rainmaker program will distribute $30 million in rewards to liquidity providers on the Kyber DMM across both Polygon and Ethereum.

Of the total reward pool, 12.6 million Kyber Network Crystal (KNC) — about $25 million — will be distributed to liquidity providers (LPs) on selected Ethereum-based amplified pools. The remaining 2.52 million KNC — about $5 million — will be for LPs on Polygon-based amplified pools.

These rewards be will in the form of KNC and of Polygon's MATIC tokens, which can also be staked to provide liquidity on KNC and MATIC pools to compound reward earnings. Rainmaker reward earners who receive KNC can also stake some on the KyberDAO to participate in governance activities thereby earning additional voting rewards.

According to the announcement, the Polygon phase of the Rainmaker liquidity mining program will run for two months, while that for Ethereum will take place over three months — starting June 30 for both.

Apart from the $5 million worth of KNC, Kyber is also contributing $500,000 in MATIC “coins” for the Rainmaker liquidity mining program.

For Kyber, Rainmaker will help to further expand Polygon’s growing liquidity. Indeed, DeFi projects continue to establish a presence on Polygon amid a broader push for multichain strategies and greater overall scalability.

Detailing the importance of the Kyber DMM and Polygon partnership, Kyber Network CEO Loi Luu told Cointelegraph: "Kyber’s vision is to deliver a sustainable liquidity infrastructure for DeFi, and this also extends to fast-growing ecosystems such as Polygon," adding:

"This Polygon partnership and the $30M Rainmaker liquidity mining program will help showcase the powerful benefits of the Kyber DMM protocol and is an important step towards greatly boosting liquidity for DeFi, as well as growing the number of users, developers, and Dapps in the Kyber and Polygon ecosystems."

Related: DeFi projects launch on Polygon, usage skyrockets

Polygon usage continues to skyrocket triggering significant integration efforts by DeFi primitives. Back in May, 0x — a liquidity bridge for decentralized exchanges (DEXs) — announced an API tool for Ethereum-based DEXs like SushiSwap, mStable and Dfyn to interact with the Polygon ecosystem.

Ren — a cross-chain liquidity protocol — has also created a bridge to allow porting of Ren-based wrapped tokens to the Polygon network.

Voyager’s $1B sale to Binance.US put on hold by US court

21shares to Launch Bitcoin ETP for Institutional Investors in the UK

21shares to Launch Bitcoin ETP for Institutional Investors in the UKSwitzerland-based 21shares announced it’s going to offer its crypto exchange-traded product (ETP) to institutional investors in Britain. The platform said the aim is to provide U.K. investors with exposure to bitcoin without the need to deal with crypto custody and security. New Bitcoin ETP to Be Offered on London-Based Aquis Exchange The 21shares bitcoin ETP […]

Voyager’s $1B sale to Binance.US put on hold by US court

Uniswap V3 Offers Far Higher Exposure, Lower Risk For Staking

Uniswap has revealed an overview of V3 of the DEX which is due to launch on May 5, described by Uniswap as “the most flexible and capital-efficient AMM ever designed.” V3 will also launch separately on the L2 Optimism solution.

User Capital Now Goes 4000 Times Farther

Uniswap accounts for 20% – 25% of all daily transactions on the Ethereum network, and V2 has handled $135 billion in volume in the year since its launch.

DeFi users have flocked to the DEX giant to stake their capital and earn rewards, and in May, they will be able to significantly raise their exposure with lower downside risk.

V3 introduces concentrated liquidity and multiple fee tiers, allowing liquidity providers (LPs) control over the price ranges their capital is allocated to as well as compensation rising with higher risks taken by LPs.

“By concentrating their liquidity, LPs can provide the same liquidity depth as v2 within specified price ranges while putting far less capital at risk.”

LPs will be able to provide capital with up to 4000x capital efficiency compared to V2, offering low-slippage trade execution superior even to centralized exchanges, according to the announcement.

Is Uniswap V3 Cheaper to Use?

With gas fees near all-time highs, retail users have been squeezed out of Uniswap along with all other Ethereum protocols in recent months, with individual transaction fees north of $70.

The new updates were mostly focused on trade execution and capital efficiency, rather than reduced fees, as fees will ideally be reduced and stabilized by upcoming scaling solutions for the Ethereum network.

However, the Uniswap announcement states that V3 will come with “slightly” cheaper gas fees along with the other features. Transactions made on the L2 Optimism deployment, however, will be “significantly cheaper!”, according to the Uniswap team. Uniswap oracles will also be cheaper and easier to integrate.

While fees will remain high by historical levels for the near term, the new update is nevertheless a game-changer for the staking community.

Advancements such as these in Ethereum-based DeFi could well spell the beginning of the end for competing efforts being built on Binance Smart Chain and other networks.

Voyager’s $1B sale to Binance.US put on hold by US court