Half of Uniswap v3 Users Lose Money — Here's Why
Too Long; Didn't ReadEven if half of the investors are losing money, another half is making them. There are main solutions that investors can use to make their investment profitable:
“Rebalancing” is known as a popular solution to reduce LPs. Theoretical traders or smart contracts that adjust their position 24/7 could make their investment profitable in most of the pools, but in reality, it is not so straightforward. Data shows that, on average, users, who actively monitor and adjust their positions daily, lose 70% more than those who hold their position for a month or more.
Holding your position for months looks more profitable on average. But still, such LPs experience impermanent losses of around 110% of the fees they earn. It means that if the trader is patient enough, he can take a good spot to capture his impermanent losses at the best time when they will be lower than fees.
The most promising solution is to choose the right pool to invest in. But choosing such pools is very hard. Except for the size, these pools do not have any pattern. Around 17% of analyzed pools have produced more fees than IL to their holders. They all have mid-size TVLs between $2m — $8m. Pools have purely altcoin pairs on par with stablecoin-to-altcoin pairs. Fees also vary, between 1% and 0.3%. Only advanced analytics can give signs, which pools in reality make money.
A consistently profitable solution is also known but is even harder to implement than the previous one. Just-In-Time (JIT) liquidity provision allows for earning positive returns in all pools. It is done by providing liquidity for a single block, absorbing fees from upcoming trades, then instantly removing their position. LPs that use JIT can earn rewards while not experiencing any Impermanent Losses. But such a solution can be profitable only for a large amount of money.