A basic strategy to Earn Uniswap Tokens
Uniswap is incentivizing people to provide liquidity to a variety of pools to earn or ‘farm’ UNI tokens. You get a portion of the fees generated as well as UNI tokens for a limited time. The pools that are participating are listed below:
The immediate question that follows is usually ‘what are the rewards?’ The returns among the four pools above range from 17.55% for the WETH/USDC pool to 22.66% for the WETH/DAI pool, according to Coingecko’s Yield Farming page. The returns are primarily in the UNI token, so the yield may vary dramatically according to that token’s price performance.
CALCULATING POTENTIAL IMPERMANENT LOSS
Remember, by being a liquidity provider, you are exposing yourself to the potential for impermanent loss. This can be calculated by opening their Impermanent Loss Calculator.
In the example above, Asset 1 is mean to represent DAI, which being a stablecoin, is unlikely to swing very dramatically in value (so the Asset 1 Price Change is entered as 0 indicating no change), but Asset 2 represents ETH, which let’s say it doubles in price overnight, for a 100% price change. In the scenario pictured above, because you are providing liquidity on both DAI and ETH, your Impermanent Loss is 5.719%. This is not that bad, considering the small likelihood of a sudden doubling of the price of ETH. If, in our hypothetical, ETH went up instead by only 30%, then your loss would be only 0.8543%, as pictured below.
In the video linked below, there’s a real-world example for of the staking performance, based on metrics from liquidity.vision — a liquidity pool tracking website. Depending on which pool you provide liquidity for, the risk can be higher or lower. If you’re in one of the hot new ‘food’ tokens pools, those tend to have higher price volatility, so there’s a greater potential for impermanent loss.
HOW TO ENTER THE POOL (via Zapper)
The easiest way to enter the pool is through zapper.fi. From there you’d need to select which pool you want to enter (to get UNI tokens, be sure to select one of the four listed above). This is the advantage of zapper.fi; if you were to enter the pool through Uniswap’s interface, you’d actually need to have the 50/50 ratio of pool tokens to enter in. Entering the pool through zapper allows you to utilize only one token and it’ll auto-swap to the 50/50 tokens for you in one fell swoop.
This takes two transactions from zapper, first to allow zapper to spend your tokens, and then to enter your converted tokens into the liquidity pool. Then there’s one more step which is to ‘stake’ the LP assets — from the same Invest tab of zapper.fi.
I find this strategy compelling because I believe that the UNI token’s value will increase significantly in the future, so earning them now seems prudent. If you’re not thinking to hold UNI longer term, this may not be as-compelling of a strategy, with the UNI token price not exceptionally high at the time of writing.
To take it one step further, stay tuned for our next installment on Pickle.
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