Navigating the Uniswap Swap Lull: Insights into Volume and Fees on Unibot
Unibot is a leveraged liquidity provision platform that operates on top of Uniswap, allowing Uniswap liquidity providers to hedge their LP positions by borrowing and shorting volatile assets. Some of our longtime users may wonder why our platform Unibot’s Fee APR appears so low this month; before we begin, we’ll briefly explain how a liquidity provider earns fees on Uniswap.
Assume that you, as a liquidity provider on Uniswap, provide tokens into Uniswap’s USDC/WETH pair, with a 0.05% fee tier. This means that from every swap that occurs between USDC and WETH, liquidity providers earn a portion of the 0.05% swap fee. Uniswap V3 is different from its previous version Uniswap V2, in that only LPers who have provided liquidity within the active range are eligible to earn swap fees. Furthermore, the amount of fees earned for liquidity providers is also connected to the amount of TVL that’s providing liquidity in a range containing the spot, i.e. in range.
To sum it up, Uniswap APR is positively correlated with total trading volume, and negatively related to the amount of TVL in range.
Less Swaps
According to DeFi Llama, out of all of the layer 2 networks, Arbitrum holds the lion’s share of volume and TVL in Uniswap V3 among all the layer 2 networks. Diamond Unibot is currently on Arbitrum and Polygon.
By drawing and reorganizing swap data from Uniswap’s subgraph, we can see that the average volume of swaps on Uniswap Arbitrum dropped significantly during the start of May. Interestingly, large dips and rises in trading volume from March to April largely coincided with news of large bank failures across the United States, particularly Silvergate, which announced its voluntary liquidation on March 8th. It is possible that crypto holders who were fearful of the exposure that CeFi exchanges had towards Silvergate Bank moved their assets toward DeFi, much like the FTX collapse of late 2022. After the initial exodus, crypto volume across all platforms and ecosystems saw a steep decline in April — Uniswap was not spared — with nearly every popular token and stablecoin seeing double digits drop in volume.
In general, Uniswap Arbitrum’s volume rises and falls hand in hand with the entire Uniswap platform’s volume. However, Arbitrum’s drop in volume in April specifically appears to be of larger magnitude when compared to that of the rest of Uniswap. This could possibly be a more endemic reason within Arbitrum’s network. Uniswap Arbitrum’s steep drop in volume coincided with the Arbitrum Foundation’s announcement of its first governance vote on April 2nd. Many keeping up with DeFi news know that the vote generated huge controversy across the Arb ecosystem.
The DeFi community was in an uproar over the Arbitrum Foundation’s governance proposal, citing it as only “symbolic decentralization” and abandoning its initial promises toward the public. Despite the Arbitrum team retracting their statements only a few days later, the reputational damage to Arbitrum likely contributed to a more intense drop in volume and TVL across the Arbitrum ecosystem from early to mid April.
Less Fees
Having established the correlation between Uniswap volume and fees earned from Uniswap LPers, the following data shows the 30-day and 7-day average fees earned in 2023.
The above data is collated from the total fees collected from LPers daily on the Uniswap Arbitrum network. As expected, the lowering amount of fees collected in May 2023 corresponds with the steep volume decline during the same period.
In fact, across the entire Uniswap DEX, April and May are shaping up to be the worst-performing months in terms of volume and fees earned. It is possible that with the constant flux of negative macroeconomic news in 2023, such as bank failures, regulators threatening crypto, and the recent turmoil regarding America’s debt ceiling and possible default, crypto whales are temporarily holding onto their assets and waiting for market trends in Q3 2023.
Even Now, Unibot Gives Better Odds
Our design philosophy around Unibot has always incorporated giving LPers, no matter their capital strength, the best odds at earning above-market yields compared to what’s available in the DeFi ecosystem. Even in this period of low volume and fee APR, benchmarking Unibot’s fee APR versus that of Uniswap shows that Unibot is able to outperform LP positions on Uniswap.
At the time of this writing (5/23), Unibot’s WETH/GMX 1% Pair offers the highest APR out of our available pairs. Some traders may also find it useful to narrow their ranges when opening new positions for higher capital efficiency at the cost of greater risk from impermanent loss.
Fret not Unibot Traders, as even if the current drop in volume and fee APR of Uniswap is only temporary, our team is constantly working on adding new pairs, networks, and Dexes to Unibot with the highest fee APRs. In fact, stay tuned in the coming weeks as we are set to introduce Pancake Swap’s pairs onto our platform and continue our development into integrating the increased scalability and possibilities offered by DeFi’s latest ZkSync technology.
Disclaimer:
The data from this article is extracted from our platform for our Unibot community’s interest and does not constitute any investment or trading advice. The Diamond Team continues working hard to improve our leveraged liquidity provision platform and enjoys discussing strategies and feedback on our official discord. We love to share more of our market observations and data.
About Diamond Protocol
We created UniBot, the first Leveraged Liquidity Provision (LLP) for
Uniswap V3 🚀
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