Uniswap is a decentralized exchange for Ether and ERC20 tokens on Ethereum. This means one could trade tokens without the interference of a third party. When a trade or swap is made, the ‘input’ token is directly debited from your account and sent to the Uniswap smart contracts. There it is exchanged for the requested ‘output’ token without any interference by an intermediate. This works thanks to Uniswap’s liquidity pools.
In this quick tutorial, I’ll show you how you can earn on trading fees by adding Livepeer Tokens (LPT) , the token for the Livepeer protocol, to the LPT/ETH liquidity pool.
A Uniswap liquidity pool is funds aggregated into a smart contract to support the trading of an ERC20/ETH pair, so in the case of LPT the liquidity pool would contain a bunch of LPT and a bunch of Ether.
The ratio of LPT and ETH contained in the liquidity pool determine the exchange rate. At the time of writing there is 18.8315 ETH and 1703.307 LPT in the pool. This gives an exchange rate of 1 ETH = 90.4496 LPT.
So when the user submits a transaction to swap funds, the ‘input’ token is debited from the user’s wallet and credited to the liquidity pool, a corresponding amount according to the exchange rate is then debited from the pool and sent back into the user’s wallet.
Uniswap charges a 0.3% trading fee whenever a user makes a swap on an ERC20/ETH pair. This fee is then distributed to the liquidity providers in the liquidity pool according to the amount they contributed to the pool.
Participation in a pool is denominated in the form of liquidity tokens these are minted when you add liquidity to a pool and burned when you remove liquidity from a pool.
They also entitle you to an amount of ETH and the token you added to the liquidity pool based upon the current exchange rate.
Adding Liquidity to LPT
January 13th 2020 will be a big milestone for Livepeer as it marks the release of the long awaited streamflow updated. This increases the number of potential service providers on the network to 100 ( from 25 ). Since this ranking is done based on how much LPT these operators have staked (or has been delegated to them), it is likely that after streamflow there might be an increase in demand for the livepeer token.
This offers an opportunity to earn trading fees by adding LPT and ETH to the LPT/ETH liquidity pool on Uniswap, as an alternative to staking LPT.
In order to do this you’ll need some LPT and a corresponding amount in ETH (according to the exchange rate). Once you have this go to https://uniswap.exchange/add-liquidity , connect your wallet of choice and choose LPT from the dropdown list.
Then enter the amount of LPT you want to add and press unlock, you’ll notice the ETH field will get filled in automatically according to the current exchange rate . This will allow the Uniswap smart contracts to spend the tokens from your wallet. Accept the transaction request from your wallet and wait until the transaction is confirmed (the unlock button will switch to ‘pending’).
Once this transaction has been confirmed you can add the liquidity to the pool by pressing the big pink ‘Add Liquidity’ button. This will prompt another, final transaction request. You can also click ‘show details’ to show exactly how much liquidity tokens will be minter for you and how much there are in total.
Tracking Your Pools
Congratulations ! You have just added liquidity to the LPT/ETH pair on Uniswap and will now start earning fees whenever the liquidity pool is drawn upon. This can be done for any ERC20 token, not just LPT.
To track your investments in liquidity pools I would suggest using Zerion. This is a DeFi dashboard that allows you to track many things within the DeFi ecosystem such as Uniswap liquidity pools, lending on Compound, etc … .
How to add Livepeer Token liquidity to Uniswap🦄 and earn fees was originally published in Coinmonks on Medium, where people are continuing the conversation by highlighting and responding to this story.