As of this writing, high gas prices plague the Ethereum blockchain. The high cost of gas for Ethereum transactions frustrates Liquidity Providers across all of Decentralized Finance (DeFi). This situation makes it difficult for Liquidity Providers (LPs) to choose where to place their capital for the highest returns and the lowest costs, which must now include the cost of moving their capital. Although Uniswap v3 is live and delivers new wins for low slippage and increased capital efficiency for decentralized finance traders, LPs are frustrated and need help to make decisions that minimize costly gas transactions. For those seeking lower slippage to swap, Uniswap v3 is a better experience than Uniswap v2 and the future for decentralized finance was. However, for LPs to enjoy the benefits of Uniswap v3, they must manage their gas costs while actively managing their positions and this requires new tools.
NOTE: Sommelier Uniswap v3 LP management application is live at https://app.sommelier.finance.
The Sommelier team is proud to introduce Pairings by Sommelier. Pairings is the easiest and fastest front-end interface to add liquidity to Uniswap v3. It aims to help Liquidity Providers make data-driven choices to be more gas efficient and capital-efficient decisions to leverage the liquidity from Uniswap v2 to place positions in Uniswap v3. Below we’ll introduce three key features of Pairings and their benefits for Uniswap v3 LPs. For complex terms, we’ll hyperlink to our Uniswap v3 glossary for context. We hope you’ll try Pairings and share your experience with us via our Telegram community.
In Uniswap v3, LPs must have a price opinion to provide liquidity to a Uniswap v3 pool. Uniswap created the new concept of the Range Order where an LP must give a price range for their liquidity. Think of this liquidity range as a mini Uniswap pool on its own. Each price range given by all the users then creates the distribution of range orders that make up the liquidity pool. See the image below for the view of the ETH/USDC liquidity snapshot from today showing the various range orders of liquidity. Each line represents the amount of liquidity that is placed at different ranges of prices or ticks.
Picking where to place your range order in the chart above requires data analysis of how prices move. Also, placing the wrong range order means spending more gas fees to move your liquidity to a new position. Sommelier currently has created a sentiment metric that aims to allow liquidity providers to choose their view of the market. LPs have three options:
These sentiments use Bollinger Bands’ technical indicators to give an estimate of the range of prices, based on past price performance. These indicators are used to highlight overbought or oversold trends. Bollinger Bands are price trend indicators, generally used to identify buy opportunities at times of low volatility and sell opportunities at times of high opportunities. Recommendations are usually based on moving average price within the upper and lower bands. Sommelier uses a wide band and a normal band, based on the last 20 days of price data to create the liquidity ranges selected by the Bullish, Neutral, and Bearish sentiment indicators. These indicators are an initial approach to help Liquidity providers understand what range their preferred sentiment will be priced at in the Uniswap v3 pool. How effective are they? At the writing of this blog, we took a bullish position in USDC/WETH. The position now sits at https://app.uniswap.org/#/pool/12661 within range and collects swap fees.
LP's who take advantage of Pairings sentiments to set their ranges are taking advantage of free data analysis to provide a range of where their liquidity is most effective. The alternative for liquidity providers today is to add liquidity by trial and error or to run their own data analysis. We think retail LPs deserve the boost that our sentiment analysis gives them and will save gas costs to use Uniswap v3 by reducing the number of times they need to move liquidity positions.
Inspired by the amazing team at Zapper.fi, Sommelier Pairings comes ready to help LPs add liquidity using the deepest liquidity available on Uniswap. If you wish to provide liquidity to a pool, but you only have one token, Sommelier will use Uniswap v2 liquidity to swap the token into the pairs that you need to provide liquidity. Leveraging Uniswap v2 liquidity means that Uniswap v3 users can get the best Uniswap liquidity to enter any Uniswap v3 pools. For example, if a user wishes to go from SHIBU to WETH/USDC, Sommelier’s Pairings will swap the SHIBU token to ETH and then to WETH/USDC using liquidity on Uniswap v2 if liquidity is not available on uniswap v3. This means that Liquidity Providers can swap into their pool pairs from any token on Sommelier.
Sommelier Pairings team worked with the Uniswap team to design the Uniswap v3 subgraph. That work was updated and merged into the new Uniswap Subgraph. Sommelier indexes this graph of transactions as soon as Uniswap v3 Ethereum smart contracts were broadcast to the Ethereum blockchain. Sommelier’s infrastructure team now runs ongoing data processing aimed to record the key volume and price data from all the new pools forming on Uniswap v3. LPs on Sommelier’s Pairings app will enjoy new features that come from a full index of all transactions on the Uniswap v3 contracts. Understanding the Uniswap v3 subgraph allows Sommelier to offer more liquidity management features on Uniswap as more pools migrate from Uniswap v2.
Gas prices on Ethereum have raised the stakes for Uniswap v3 LPs. They must make more accurate decisions or risk wasting their capital on gas fees needed to keep moving their positions into a fee-generating range. Sommelier is the co-processor to Ethereum and focused on serving retail Uniswap LPs with the power of institutional Prime Brokerage execution. Sommelier’s Pairings for Uniswap v3 offers the fastest and easiest way for LPs to add liquidity via a Uniswap range order that is based on historical market data. Sommelier helps liquidity providers express an opinion of their desired price range that lowers the risk of making incorrect decisions or guessing. Sommelier Pairings’ one-sided addition for liquidity allows LPs to come with ETH and one of any of the two tokens of their pool of choice and to add liquidity from Uniswap v2 or Uniswap v3 pools.
Sommelier has more features planned for the Pairings app. Come join us and tell us your experience adding liquidity to Uniswap v3. Your thoughts will guide our team as we continue to improve the new LPs’ journey on Uniswap v3.
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