A guide to effectively using Uniswap v3 via Instadapp’s dashboard
Understanding the process to provide liquidity on Uniswap v3 and deploying staking rewards in 1-click using Instadapp’s UI
Introduction (The V2 vs. V3 paradigm)
Uniswap is a protocol for decentralized and permissionless token swaps on Ethereum.
Uniswap V2 has been a marvel leading to the Defi Summer back in 2020. The exchange protocol had done over $250B volume to date, so it rivals the volume levels of major centralized crypto exchanges.
Uniswap v2 is quite simple all you have to do is to acquire an equal proportion of the two tokens you want to provide liquidity to. Uniswap lets you can become a market maker at any time and from anywhere in the world.
But that’s the thing: Uniswap V2 mandates uniform liquidity (i.e. price-wise you provide liquidity from zero to infinity for any token pair you LP for) and you do so in a 50/50 fashion, meaning you deposit 50% ETH and 50% DAI for the Uniswap V2 ETH/DAI pair and your position will cover trades from $0.00 to ∞ (full range).
Uniswap V3 has created a new way to provide liquidity in Defi.
Rather than requiring liquidity providers (LPs) to provide liquidity to a full price range (like in V2), Uniswap V3 enables concentrated liquidity. In short, it gives LPs preferences on a price band where their liquidity is used.
When your price band is highly concentrated, your position is more capital efficient and generates more fees when the price is in range. And when we talk about capital efficiency, it isn’t just a little better — Uniswap V3 is up to 4,000x more capital efficient. This means that your money is being put to work more efficiently. You can make more money as a liquidity provider in Uniswap V3
There are tradeoffs! The wider the price band, the fewer fees you’ll accrue. But if you have a tighter price band, you’re at a higher risk of impermanent loss. Thus it is really important to tune the parameters of your Uniswap V3 LP position, but it can also be really complicated for beginners.
But no worries, we got you covered!
Uniswap v3 on Polygon
Uniswap comprises most of the volume of the DEX volume on both Mainnet and Polygon. Upon launching on the Polygon Network, Uniswap quickly became the top Dex by trading volume in just a short two-month period. Instadapp took the first dive and built the first accessible interface to Uniswap v3 on Polygon.
So let’s discuss operating Uni v3 on the Polygon Mainnet!
Let’s Start from scratch… Here are a few simple steps you need to follow
Step I:
Connect your software wallet to Dashboard (preferred chain => Polygon in our case)
Step II:
Create your Defi Smart Account (DSA) on the preferred chain
Step III:
Deposit Tokens into your DSA from your software wallet
Step IV:
Trade to get the right amount of assets to be pooled/staked
Step V:
Navigate to Uniswap V3 under the protocols section on the Dashboard
Now we can have two routes from here on …
A) Creating a new Position with a token pair (Providing Liquidity to a pool)
B) Creating a new Reward pool (Seeking Liquidity into your pool in turn of rewards)
Let’s go through the first 4 steps in detail below 👇
Step I: Connect your software wallet to Dashboard
i) Navigate to Instadapp Dashboard
ii) Change the network to Polygon from the dropdown on the top-right section
iii) Click connect and choose your preferred wallet
We’ll be dealing with Metamask Wallet here(It is assumed that you have the Metamask plugin preinstalled with Matic network already added to it if not please refer to Setting up Metamask Wallet & Adding Polygon Network to it)
Step II: Create your Defi Smart Account (DSA) on the preferred chain
i) Create an account from the button at bottom right as shown in the picture
ii) This step involves a minimal fee in MATIC( depends on the traffic on the network at that time) which has to be approved by your Metamask Wallet. Wait till the txn is completed(the time depends on the fee you give, the higher the faster) and Voila your DSA is ready to take on the hefty Defi with ease!
Step III: Deposit Tokens into your DSA from your software wallet
i) Click on the ‘Deposit’ button in the right pane and then on the Deposit button on the Asset you want to transfer to your DSA from your Metamask
ii) Simply enter the amount to be transferred and hit Deposit.. followed by confirming the txn from your wallet(involves a small fee in MATIC)
iii) You can now see the updated balance in your DSA Balance
Step IV: Trade to get the right amount of assets to be pooled/staked
Let’s say we want to supply to the MATIC/USDC Pool so we now need to convert some amount of MATIC we have to USDC (ignore the prior balances in the image below). Another way is to Deposit USDC separately following the steps above but Let’s explore trading in case you need it someday :)
i)Simply click on ‘Trade’ beside the asset to be traded(MATIC in our case) and select the token to which you want it to be traded(USDC in our case)
ii) Enter the amount of tokens you want to trade and confirm the txn from your wallet after hitting the Trade button on the Interface.
And you’ll see the updated balance in your account
Step V: Navigate to Uniswap V3 under the protocols section on the Dashboard
i) Move to the Uniswap v3 interface on Polygon by either going to the Uniswap v3 under the protocols tab in the left panel OR from the manage button on the Polygon Dashboard
Now Let’s cover
A) Creating a new Position with a token pair (say MATIC/USDC)
Start by clicking the New position button as shown below and then comes the important part…
i) Select Pair: The first step is to select which pair of tokens you wish to provide as liquidity. Any pair of ERC-20 tokens is valid, but each pair has different characteristics. You might wanna consider factors such as TVL, trading volume, and your assessment of the risk that these token prices diverge in the future. You can analyze data about popular token pairs on Uniswap Info.
ii)Review Fee Tier: Once you’ve selected a pair of tokens, the next step is to select the right fee tier. Every pair of tokens offers four fee tiers:
- 0.01% fee tier:
This fee tier particularly helps Uniswap compete in stablecoin <> stablecoin pairs, where the majority of the market share is taken by Curve and DODO with their 3–4 bps fees or even lower at 1bps fees.
- 0.05% fee tier: Best for stable pairs
The 0.05% fee tier is ideal for token pairs that typically trade at a fixed or highly correlated rate, such as stablecoin-stablecoin token pairs (e.g. DAI-USDC).
- 0.3% fee tier: Best for most pairs
The 0.30% fee tier is best suited for less correlated token pairs such as the ETH-DAI token pair, which are subject to significant price movements both to the upside and downside. This higher fee is more likely to compensate LPs for the greater price risk that they take on relative to stablecoin LPs.
- 1.0% fee tier: Best for exotic pairs
The 1.00% fee tier is designed for exotic assets, where LPs take on extreme price risk (e.g. ETH-GTC).
The interface will show the % selection of each fee tier for any token pair that you select
In the example above, we see 90% of all MATIC/USDC liquidity is provided in the 0.05% tier making that a good choice for prospective MATIC/USDC LPs.
If you’re new to LP’ing, it is recommended to use the fee tier with the highest % select. However, advanced LP strategies may use other fee tiers to provide liquidity. Please DYOR on this front
iii) Set Price Range: Next, you need to choose a price range in which to provide liquidity. When making a price range decision, you should consider the degree to which you think prices will move over the course of your position’s lifetime. You should also consider your willingness to actively manage the position as the market evolves, and the economics of transactions required to actively manage a position.
If the price moves outside your specified range, then your position will be concentrated in one of the two assets and not earn trading fees until the price returns to their range. See the visualizations in this blog post to observe how your assets are affected when the market price moves out of range.
But no worries, Instadapp’s 1-click Rebalancing will help you sail through! More on this later..
iv) Deposit Amounts: With your pair, fee tier, and price range selected, you can now decide what amount of tokens to contribute to your position. Enter a value in one of the ‘Deposit Amounts’ boxes and the other box will automatically fetch the corresponding amount. The ratio of these two fields is based on the position of your price range around the market price. If your price range leans more toward one side of the market price, then you will provide more of that asset. Which is totally fine as the ratio here need not be 50/50. You can adjust your ratio by sliding the price range left-right along the chart or dragging the min or max price boundary.
Finally, you simply need to hit the ‘Create’ button and there you go…
Congrats! Once the transaction gets confirmed, your assets now providing liquidity to Uniswap traders and your position is earning fees.
The following tools can help you simulate Uniswap v3 positions and help you guesstimate your rewards. Please note that these tools are community-made and thus are subject to inaccuracies.
B) Creating a new Reward pool (MATIC/USDC Pool with MATIC Rewards)
Lets learn how the pool’s liquidity providers can get reward tokens by keeping their liquidity position staked. We will create a pool with MATIC as the reward for Liquidity providers.
i) Click on ‘New Reward’ button and select the pair on which you want to give rewards. For example, we want to reward people who provide liquidity to the MATIC/USDC pool, and we select MATIC and USDC in the “Select pair” section.
ii) Select the fee by clicking on any three fee tiers. We have three options 0.05%, 0.3%, and 1%; keeping the fee as 0.05% means that whenever someone swaps one token for other in the pool, the liquidity providers will get 0.05% of the value swapped.
iii)Select the token you want to give as a reward; suppose you want to give MATIC as a reward to the liquidity providers. So select MATIC under the “Select Reward Token” and enter the amount you want to give as a reward; for example, we will give 100 MATIC to liquidity providers as rewards.
iv) Select the time frame for which you want this offer to be available for the liquidity providers, lets put the start time as 24 May, 7:00 P.M. and end time as 15 June, 6:00 P.M. That means that if someone provides liquidity within that time frame is eligible to get rewards until the reward time ends.
Enfin, Click the ‘Create Incentive’ button and confirm the txn from your metamask wallet, And you will see the position in the ‘Staking Reward Pools’ section if you tick mark the ‘Yet to start’ checkbox
Voila! you have deployed the Uniswap v3 Rewards in a single click…
You can also supply liquidity to the existing Reward pools following the very process as in A) Creating a new Position with a token pair section after clicking on it
Managing Uniswap LP Positions
Instadapp makes managing your positions a cakewalk!
In the interface you will find information regarding each NFT’s liquidity, earned fees, its current composition and if it currently in range.
Find the Uniswap position you would like to manage and click the [...] to open the context menu. You can remove or add liquidity to the current LP.
If you have pending rewards they will automatically be claimed during the process of unstaking. Fees accrued by the position can also be collected by using Collect Fee or using Claim from the three dots on the top.
📊 Visual Graphs of Position
Under each position you will find a [^] carrot button, this will expand the NFT position screen and display a visualization of the LP Position. You can adjust the view by different time frames or view the positions lower and upper ranges of the position.
📈Rebalancing your Position📉
Instadapp provides a 1-click rebalance for your position that is out of range, the process being real simple. You just have to click on rebalance and reset the price range either using the graph or putting in values numerically!
That’s it, now you get your position back in range by just hitting the Rebalance button and confirming the txn from your wallet.
Awesome! Great Progress! Now you’d be having a pretty good understanding of the Uniswap V3 and also would be able to use it with ease.
Instadapp has made things easy to manage, capital-efficient and with cool strategies like rebalancing, aided by the intuitive interface, Instadapp helps you stay one step ahead in this ever-expanding world of DeFi!
Want to test Instadapp beforehand? You can activate simulation mode and test out the Instadapp UI and see how you can level up your DeFi management.
Would also love your feedback! Thanks for taking out time to read!
