Guide: Providing Liquidity on Uniswap

Using your wstETH as liquidity to earn rewards on Uniswap

Updated over a week ago

Uniswap is a decentralised exchange protocol that enables permissionless, fast and effective token swaps on Ethereum and other EVM compatible blockchains (e.g. Arbitrum and Polygon). It is designed around a collection of smart contracts, which together form a framework for peer-to-peer market making.

Through Uniswap, liquidity providers (LPs) can earn trading fees and potential extra rewards. However, it is not without risks since the value of your LP position is probably less than the initial one. To gain an in-depth understanding of the risks, check out: Uniswap: A Good Deal for Liquidity Providers?

Providing Liquidity

Since rebase tokens are not perfectly campatible with Uniswap v3, wstETH - the wrapped version of stETH - is used. Lido users (i.e. wstETH holders) can provide wstETH liquidity with any token while still receiving staking rewards.

  1. Get wstETH. To start, make sure you hold wstETH in your wallet. To get wstETH, you can either wrap ETH/stETH to wstETH on Ethereum via stake.lido.fi/wrap or swap to wstETH via Dex.

  2. Choose the network. Uniswap now supports several chains like Ethereum and Arbitrum.

  3. Choose the token pair or pool. As stated, you can LP wstETH with any other token. The wstETH/ETH pool with 0.01% fee tier is the most selected one for Lido users. All the wstETH pools can be found here.

  4. Choose the fee tier. Uniswap introduces 4 default fee tiers (i.e. 0.01%, 0.05%, 0.3% and 1%). As suggested, a low fee tier is mostly selected if the 2 tokens are correlated like wstETH and ETH, vice versa. For more info, check out Uniswap Docs.

  5. Set the price range. Selecting either full range or a specific range is allowed. However, if the price is out of your chosen range, you will not earn trading fees.

  6. Choose the amount of tokens to add. When you select one token’s amount, the other one’s will be displayed.

  7. Preview and Add. After checking the details, you have to approve a transaction to complete the LP process. Once the transaction is confirmed, you will receive an NFT representing your LP position. You can review your position on the Pools page.

Claiming Fees

To claim fees, you have to visit each position and click ‘Collect fees’.

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