Five Million Dollar Uniswap v3 Strategies You NEED To Know

Uniswap v3’s innovative focus on concentrated liquidity has revolutionized the landscape for Decentralized Exchanges, offering deep liquidity pools. This new approach benefits both traders, who experience reduced slippage, and liquidity providers, who enjoy increased profits. It’s a mutually beneficial situation. Now, let’s explore five strategies you can use if you’re looking to provide liquidity.

As a reminder, you can use our tool, BuildrMetrics to simulate the performance of these strategies before implementing them!

Income (focus on Yield)

If you’re investing solely to generate income, your primary concern should be the yield that the liquidity pools offer. You’re essentially on the hunt for the best-performing pools, without taking into account your opinion on the underlying asset. Forget asset appreciation; it’s all about maximizing yield here.

For this income-centric approach, impermanent loss isn’t a key concern. Why? Because you didn’t intend to hold the underlying assets in the first place. You’re just here for the yield. To achieve this, opt for assets with high yields and make frequent adjustments to stay within the most profitable ranges.

Passive Income (focus on Growth)

Shifting gears, the next strategy zeroes in on growing your principal assets rather than just raking in income. Here, you’re searching for pools whose underlying assets resonate with you, with the aim of increasing your holdings of these assets over time. For instance, if you start with 1 ETH, the objective is to accumulate more ETH.

Managing impermanent loss is crucial for this strategy. If the loss exceeds the fees you collect, you’re essentially losing money compared to simply holding your initial assets. Therefore, select pools that align with your long-term view and tailor your asset ranges to the pair’s volatility.

Range Order (focus on Buy/Sell)

A range order mimics a limit order you’d place on a traditional exchange, but with a twist — you earn fees instead of paying them. This strategy is best suited for volatile/stable asset pairs. When you want to sell, input single-sided liquidity in the volatile asset. Set the range based on the selling prices that suit you. If the asset’s price rises above your range, your assets will have shifted into the stable currency, at which point you can exit the position.

For buying, reverse the process: use single-sided liquidity in the stable asset, and set your buying range. When the price dips below this range, your assets will have converted into the volatile asset, allowing you to close the position.

Dollar Cost Average (focus on Buy/Sell)

The Dollar Cost Averaging (DCA) strategy is similar to range orders but operates within a wider range. This method is applicable in bullish, bearish, or neutral markets. The objective is to either buy more assets as prices dip or sell as prices rise, all while earning fees.

Assuming the price of MATIC is 0.45, you might create a MATIC/USDC pool with a range of 0.4 to 0.65 to sell MATIC as the price moves up. Alternatively, to buy MATIC you might create a pool with a range of 0.5 to 0.25 to buy MATIC as the price moves down.

Covered Call (focus on Sell)

Uniswap v3 liquidity positions resemble the payoff curve of covered calls in options trading. With covered calls, you essentially sell the underlying asset at a predetermined price. This can be accomplished through LPs by using a single tick for liquidity placement.

To initiate, place single-sided liquidity in a volatile/stable pool at the specific price you’re willing to sell. Since it’s a single-tick range, impermanent loss isn’t an issue. Moreover, the fees you collect are similar to the premium earned in options trading.

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