Why did you get CORE-ETH Pair Uniswap Liquidity Pool Tokens (LPs) at a bargain price by Participating in Liquidity Generation Event 1 (LGE 1)?
*****************************
Note and disclosure: I write this post to help me understand how the Uniswap LPs creation process work. Do NOT treat this as financial advice. I am a current holder of Core-Eth LP tokens.
*****************************
The first LGE of cvault.finance had collected 3,759 ETH. By pairing
3,759 ETH with 10,000 CORE, the team at cvault.finance launched the first core-eth liquidity pool at Uniswap.
What is the formula for calculating the number of LP tokens created?
Well, according to Uniswap V2 white paper:
No. of LP Tokens = Square Root of (No. of Token 1 x No. of Token 2)
Thus the number of LP tokens at the point of creation is:
No. of LP Tokens (at launch) = Square Root of (10,000 x 3,759) = 6,131
Therefore, all who contributed to LEG 1 with their eth were handsomely rewarded with newly minted LPs in proportion to their contributions.
Based on my calculations, that turns out to be 1.63 LPs for every 1ETH contributed.[Note: Kindly help me validate this figure if you had participated in LGE 1. One just reported in Core Telegram Chat that he/she received 6.5LP for contributing 4ETH. Which just fit nicely with my calculation. :)]
If you compare that to the cost of minting the LPs currently, it is a huge bargain!
Let’s say, I want to mint new LPs by adding liquidity to CORE-ETH pool on Uniswap. According to Uniswap V2 White Paper, the formula to calculate the number of LPs I will get is:
S (minted) = [X (deposited)/ X (starting) ] x S (starting)
Let’s say, if I am depositing 16 ETH worth of ETH and 16 ETH worth of Core to create new LPs (based on realtime data at this time of writing):
LP (minted) using 32 ETH (Core+ETH) = [16/40,996] x 9,675 = 3.77LPs
Thus the cost of minting will be 0.1178 LP/ETH. As you can see, it is quite expensive compared to those who had participated in LGE 1.
Even if you buy from the open market at balancer, the cost of LPs at this time of writing is: 0.2395 LP/ETH (which is cheaper than directly minting but still way more expensive than those lucky participants of LGE 1!).
In summary, we can conclude that participation in LGE 1 had given massive benefits to those who did not miss that. Unfortunately, I missed that opportunity. I now have to “mint or buy from balancer” to get Core-Eth LPs to farm Core.
In my view, there is one key reason why one received LPs at a bargain price during LGE 1.
The price of CORE went up massively after the core-eth pool was created and trading began at Uniswap.
At launch on 26 Sept. 2020, the opening price of Core was 0.3843 ETH. At the end of the trading day, the closing price of Core was 3.194 ETH. [based on trading view data].
Currently, the core is trading at 15.0164ETH (as I typed this sentence).
In the next article, I will share with you my findings on the possible scenarios for LGE 2.
I hope you find this article useful. Please feel free to leave your comments below to make this article better.
Thank you all very much for spending your invaluable time reading my article.
