Liquidity Providers can concentrate their capital within custom price ranges, providing greater amounts of liquidity at desired prices.
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Whereas v2 required all users to provide liquidity across the entire price curve from 0 to infinity, v3 allows Liquidity Providers (LPs) to optionally concentrate capital in the price range they believe will generate the highest return.
This guide will walk you through the steps to provide liquidity. The explanations videos are from Uniswap.org, you will use the same interface on https://astar.exchange
To provide liquidity follow these steps:
Select a 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 may wish to consider factors such as TVL, trading volume, and your assessment of the risk that these token prices diverge in the future.
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 three fee tiers:
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). LPs take on minimal price risk in these pools, and traders expect to pay minimal fees.
0.3% fee tier: Best for most pairs
The 0.30% fee tier is best suited for less correlated token pairs such as the ASTR-USDT 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. Relevant assets are those that are particularly subject to monotonic price movements.
The app will auto-select the fee tier with the most liquidity because that is a good heuristic. In most cases, LPs will align around one fee tier for a pair. If you’re new to LP’ing, we recommend using the auto-selected fee tier. However, advanced LP strategies may find it worthwhile to provide liquidity in the other fee tiers. Note: that LPs who choose the non-consensus fee tier might be running a sophisticated strategy to offset certain risks. Please do your own research and tread carefully when considering other fee tiers.
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.
Note: that your price will snap to the nearest tick. Don't worry if you're unable to type in a nice round number! This is expected because of how ticks work in Uniswap v3. Instead of picking a price range, you can provide liquidity across the Full Range like in Uniswap v2 by clicking the Full Range button. However, please note your rate of return will be significantly lower than a similar position with a more narrow price range.
