Providing liquidity on Uniswap means becoming a part owner in the decentralized Automated Market Maker system. When users trade out of the Uniswap wLEO-ETH pool, they incur a 0.3% trade fee. This fee is autonomously split between liquidity pool providers (LPs) every time a trade occurs.
Becoming an LP is a simple process, you just deposit an equivalent amount of wLEO and ETH into the Uniswap pool. In exchange, you receive LP tokens which represent your fractionalized share of the wLEO-ETH pool and collect fees.
Step 1). Get WLEO Tokens
In the previous video, we discussed the process of wrapping LEO from Hive into WLEO on Ethereum. In order to provide liquidity, you need both WLEO and ETH. The two ways to get WLEO are:
- Wrap LEO from Hive into WLEO on Ethereum
- Buy WLEO Directly by Swapping Ethereum for it on Uniswap
Step 2). Navigate to the Add Liquidity Page on Uniswap
Once you get to the Add Liquidity Page, connect your ETH wallet in the upper right. Most people use Metamask to interact with ETH dApps like Uniswap.
Step 3). Approve WLEO
When you interact with ERC20s on various Ethereum dApps (like Uniswap), you have to first approve the token that you're transacting with. This only has to be done 1x for each ETH address/token that you utilize (i.e. once you approve WLEO on Uniswap, you won't have to approve WLEO for that ETH address again in the future).
Hit the Approve WLEO button and then confirm the transaction with Metamask. Once this transaction is confirmed, the "Supply" button will light up.
Step 4). Supply WLEO + ETH
Now that the Supply button is available, confirm the details of your swap inputs. In this example, Neal is providing 32,833 WLEO to the pool which means that he needs the equivalent (in USD terms) ETH to add to the pool - 13.59 ETH.
Step 5). Confirm and Send
Now that you've hit supply, you'll get a confirmation window from Uniswap. It will tell you the amount of WLEO/ETH Pool Tokens that you'll receive.
As I mentioned earlier, the LP tokens represent your fractionalized share of the total pool. In the video example, you can see that Neal's contribution of 32k WLEO and 15 ETH will get him a 14.6% share in the total liquidity pool which means that he'll earn 14.6% of all trading fees incurred in the pool while he's an LP (all else being equal).
When you're happy with the details, hit "Confirm Supply" and then confirm the ETH tx with Metamask. Once the ETH blockchain confirms your transaction, you'll notice the WLEO/ETH pool tokens in your wallet.
Track Your Position
In the video we talk about 2 options for tracking your WLEO-ETH pool position.
Uniswap offers a nice dashboard where you can see the current value of your liquidity - broken down in USD and the paired tokens. Next to it, you can also see the total fees you've earned while being an LP for that particular pool.
I also enjoy an app called Zerion. I use it mainly on my mobile device and it allows me to track multiple ETH addresses and get notified each time a transaction occurs in any of those wallets. Tracking the pool position there is also nice in terms of seeing the fluctuating value. The fees, however, are not separated in this wallet - Uniswap is still the superior option for tracking accrued earnings from fees.
How Much Do LP's Earn?
This is a dynamic question to answer. LP's earn a fractionalized share in the 0.3% trading fee that users incur each time they make a trade in the WLEO-ETH pool. This means that the daily volume and total amount of tokens pooled will cause fluctuations in the LP earnings from fees.
A few users have already calculated the annualized rate of return that the LP's have seen thus far. It currently comes out to about 10-20% per year - although the pool is still only 2 days old, so it will take time to pin down a more reliable figure. This can easily be calculated at any time:
last 24h of fees earned / total liquidity in the pool (USD) * 365
With the WLEO-ETH pool, we've also set up a bounty program - which is typically referred to as "Yield Farming" in DeFi. This program releases 300,000 LEO in additional incentives to LEO/WLEO Liquidity Providers over the first 90 days of the pool. You can read more about that program here.
The current rate for LP earnings when this incentive program is included comes out to about 118% annualized:
$225,000 (total pool value) - $50,000 (exclude LeoFinance team stake) = 175,000. 300,000 (total LEO bounty for 90 days) / 175,000 = 1.714 LEO per $1 invested in the pool
1.71 LEO per $1 invested in the pool after 90 days (27% in 90 days = ~108% annualized). Keep in mind that as the liquidity pool value and # of providers fluctuate, this ROI will fluctuate as well. The daily volume is also volatile right now as the market finds its footing.
One major benefit to being an LP is that you can withdraw from the pool whenever you want. You'll stop earning from the pool but you'll have your liquidity position back instantly.
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