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🛡 How range liquidity works on Uniswap V3 and TraderJoe

  • Thread starter Thread starter Bored Ape Crypto Club
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Bored Ape Crypto Club

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Range liquidity can be compared to placing limit orders on the exchange. Only the orders are bilateral and perpetual.

And you don’t pay a commission for their execution, but on the contrary, you earn.

âž– Let's look at a specific example:

I have 1,000 USDC and I want to open a position in the ETH/USDC pair (0.15%) with a range of 1700-1800 on the TraderJoe exchange. Let's designate the current price of ether as $1,850 for example. We will take the commission in this pair as 0.15% as in the real pool on TraderJoe. This is an important commission value (0.15%), on which the distribution of our deposit across the entire range will depend. By depositing 1,000 USDC in the range of 1700-1800, these funds will be distributed among 39 baskets. Since the price of ether in this example is $1850 and is outside our range, liquidity is deposited unilaterally. That is, only in USDC.

This is exactly the answer to the question from the chat about how to provide liquidity in one asset.

The step of one basket is 0.15%. The first will be 1799.23, the second 1796.54, the third 1793.85 and so on down to 39 baskets to 1699.62. The difference between each basket is exactly 0.15%. If I deposited liquidity into a pool with a commission of 0.05%, the step between the baskets would be 0.05%. It is important to understand this.

âž– What is the result?

My 1,000 USDC are evenly distributed among 39 baskets from 1799.22 to 1699.62. Each basket contains $25.64 (1000/39). These baskets are my pending limit orders to buy ETH. As soon as the price of ETH enters my range, my baskets (orders) will start filling with ether + I will receive a commission. Each basket in this example acts as an order to buy ETH in the amount of $25.64.

Now remember that these orders are two-way and perpetual.

As soon as ETH fell in price below 1699.62, all my 39 baskets were filled with ether and became orders to sell ETH.

They are perpetual because they work until you withdraw liquidity.

That is, when a basket is filled with ether (a buy order is triggered), this basket automatically becomes an order to sell ether for USDC. While the price of Ether is in your range, you earn on commissions. On Uniswap V3, Ticks are used instead of baskets. The difference is very small, but the principle is +- the same.

In very simple terms, providing liquidity by ranges is placing open-ended orders to buy/sell a certain asset in a trading pair at specified values.

Plus, you get commissions on top đź’°
 
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