Hello frens,
In our last article, we discussed the process of entering and exiting a v3 pool using one token to avoid impermanent loss (IL) and simplify record keeping. It’s not completely intuitive how to do this using Uniswap’s interface, so check out what I wrote about it to get caught up.
Today’s article we’ll learn how to be market makers and provide liquidity for others to trade, giving us a sort of reactionary trade completely on chain. We’ll be looking at how to use a pool as an on chain limit buy (or sell) that pays us to use. Down with centralized exchange fees! Long live DEX’s!
Note: while I discuss my outlook on ETH and BTC prices, they are WILD guesses. Nobody knows the future, and this is not financial advice.
Market Backdrop
For those readers who come across this article in a few months or a few years, this is being written in a crypto bear that includes: Fed raising rates to fight inflation, 3AC going insolvent, Celsius busting, BlockFi fighting for its life, and GBTC being denied ETF status by the SEC. The price of ETH and BTC are down only, and nobody knows when the next bull market will start.
The good news is we can add to our ETH or BTC long term stacks if we took profits last bull cycle, or have cash flow outside of crypto. Currently, my pool prices all reflect price points where I am happy to add to my ETH stack.
Therefore, a very narrow v3 pool acts like an on chain limit order. But we are not trading here; we are making a market and letting others trade our tokens. We get paid to do this, and we get paid well.
In fact, two friends have shared their success with me trying out v3 pools the past few days. One reported 4.5% in three days on his position; another “made a few grand” when ETH went up. You don’t need to read this newsletter to make that kind of money on v3 pools, but this is very specific alpha for $10 (soon to go up to $30).
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