Half of all users who supply liquidity on the 3rd variation of the decentralized exchange Uniswap are seeing lower returns than they would have if they just held tokens in their own wallet, a brand-new research study claims.
According to the research study, the unfavorable returns for users are because of the trading charge earnings created by the procedures being smaller sized than the so-called impermanent losses, or losses that are sustained when your funds are still in a liquidity swimming pool, as an outcome of how automatic market makers (AMMs) like Uniswap work.
” While Uniswap V3 creates the greatest trading costs of any DeFi procedure, impermanent loss completely eliminated cost earnings in over 80%of the swimming pools examined,” the research study, carried out by crypto advisory company Topaze Blue and the decentralized liquidity procedure Bancor (BNT), stated.
It included that the liquidity swimming pools examined in the research study– which made up 43%of Uniswap V3’s overall worth locked (TVL)– produced USD 108.5 bn in trading volumes and USD 199 m in trading charge earnings in between May 5 and September 20 this year. Still, the earnings was inadequate to offset losses.
” However, throughout the exact same duration, the swimming pools sustained over USD 260 m in impermanent loss, leaving 49.5%of [liquidity providers] with unfavorable returns,” the group behind the research study composed.
Liquidity swimming pools comprised of stablecoins-to-stablecoins such as USDT/USDC, and various variations of the exact same cryptocurrency such as renBTC/WBTC, which are less susceptible to impermanent losses, were left out from the research study.
Meanwhile, the research study likewise discovered that some liquidity swimming pools had an even greater portion of users that were losing cash, with for example the maker (MKR)/ ethereum (ETH) swimming pool providing unfavorable go back to 74%of the liquidity companies.
For other swimming pools, such as the USDC/ETH and COMP/ETH swimming pools, returns were unfavorable compared to simply “HODLing” for around 60%of the users offering liquidity, the group behind the research study stated.
Lastly, the research study kept in mind that the only group that “regularly generated income when compared to merely HODLing” were so-called “just-in-time” liquidity service providers. These are users who will supply liquidity for a single block in order to gather costs from upcoming trades, and after that immediately eliminate the liquidity once again later.
Given that this liquidity is offered “intra-block,” it did not sustain any significant impermanent loss, and might gather 100%of the trading costs as earnings, the report stated, concluding:
“[…] in general, and for practically all examined swimming pools, impermanent loss goes beyond the costs made throughout this duration,” and “both unskilled retail users and advanced specialists battle to make a profit under this design.”