How to add ARB single token LP in Uniswap V3?

Author: Loopy Lu, Odaily

At 9 PM Beijing time tonight, the ARB airdrop claim will begin. There are only about 3 hours left until the airdrop claim. In addition to participating in ARB trading, providing liquidity for ARB trading pairs in DEX is also an extra way to earn profits.

Currently, there are 15 ARB token LP pairs on Uniswap. The total liquidity has exceeded 26 million USD.

Among them, the liquidity for ARB/USDC and ETH/ARB both exceeds 10 million USD. Since the ARB token has not yet opened for claims, these LP pools only contain a single token, either USDC or ETH.

It is worth noting that in the top-ranked LP pools, the transaction fees are as high as 1%. This also means that LPs can earn significant trading income. How can ordinary users participate?

Uniswap LP Adding Tutorial

1. Click on "Pools" in the top bar of Uniswap to enter the liquidity pool interface.

2. Click "New Position" to add a new position.

3. On the new page, users can set the LP they want to add. You can set USDC or ETH or other tokens according to your preference to form an LP pair with ARB.

4. After setting the LP pair, you need to set the transaction fee.

Uniswap V3 LPs typically use a transaction fee of 0.05%, which is relatively reasonable, but we can see from Uniswap's pool list that the top-ranked LP pools have set the fee to the highest level of 1%.

5. Then users need to set the market-making range. Unlike common AMMs like Uniswap V2 and Pancake, in the V3 mechanism, users can choose their own market-making range.

For example, if you set the market-making range for ARB/USDC to be between 0.97 to 1.99 USDC per ARB, then when the market price enters this range, we can provide liquidity to the market and earn fees.

6. Set the amount of funds to invest and click confirm to start market-making.

Uniswap V3, due to the price range setting, only provides liquidity within a certain range, thus reducing the possibility of large impermanent loss. This is more friendly to LP providers but also tests users' judgment of the market.

Why No ARB Tokens Needed?

Interestingly, as an LP, we only need to provide USDC without needing to provide ARB. Why is that?

Currently, ARB is not open for trading, so we can understand it as the spot price being outside the range of our market-making price. When the spot price is outside the market-making price range, LPs must provide liquidity entirely in a single token.

We hope the market-making range is between 0.97 to 1.99 USDC. When the market price reaches 0.97 USD, if the market continues to rise, it means people are using USDC from the pool to buy ARB, so there must be more than enough USDC in the pool compared to now. Therefore, at this time, LPs need to provide liquidity to the protocol entirely in USDC and wait until the price breaks through 0.97 USD to start earning fee income.

(If a user provides liquidity in a "sky-high" range, they only need to provide ARB.)

How Much Can LP Earn?

As a popular token, let’s assume that ARB's trading volume on Uniswap on its first day is 100 million USD, and based on this, we will estimate the LP's earnings. (The assumed figures are for calculation convenience and do not represent a market prediction.)

Currently, the vast majority of LP pools have set the transaction fee to 1%. That means a trading volume of 100 million USD within 24 hours could bring 10 million USD in earnings for LPs. The current 26 million USD in LPs will share this 10 million USD, resulting in a first-day return of up to 38.5%.

It is important to note that due to V3's inclusion of a market-making range, LPs that exceed the range will no longer participate in market-making, so among the 26 million USD in LPs, there will be a large number of ineffective LPs. The actual number of LPs participating in sharing the 10 million USD will be far lower than 26 million USD, so the LP return rate will be higher than 38.5% (of course, if the range is set incorrectly, the return rate will be lower).