Uniswap is a decentralized exchange, in short DEX, running on Ethereum blockchain since 2018. It was created by Hayden Adams and decentralized cryptocurrency exchanges. Uniswap empowered everyone to be a liquidity provider by simply supplying liquidity to Liquidity Pools and earn handsome amount of fees. Wondering what do the terms “Liquidity Provider”, “Liquidity Pool” mean? Don’t we have to covered in the following paragraph. If you are aware of these terms skip next paragraph.
A Liquidity Pool is a collection of funds locked in an Uniswap smart contract running on Ethereum blockchain. Liquidity pools are used to power decentralized trading and they are one of the pillars of Uniswap ecosystem. Users who add funds in the form of two tokens of equal value to these Liquidity Pools and they are referred as Liquidity Providers. In exchange for providing their funds to the pool, they earn trading fees from the trades that happen in their pool. Thus Uniswap encourages Liquidity Providers to actively participate in the market along with with trades for facilitating an Automated Market Maker system.
In this post let us explore how much Liquidity Providers are earning by providing liquidity to Uniswap V3. All fees mentioned in this post are in US Dollars. Let us start with a chart that shows growth of fees collected by Liquidity Providers along with number of transactions between June 2021 to July 2021. In the span of 2 months we see around 94 thousand trades on Uniswap with a net fee of 137 Million US Dollars distributed to Liquidity Providers.
Here is a breakdown of Fees earned by Liquidity Providers daily along with trades recorded on that specific date. 7.2 Million Dollars were earned on June 23rd 2021 and recorded as the day with highest amount of fees collected in June & July 2021.
This chart shows day over day change in fees collected by Liquidity Providers.
Is there any correlation between fees earned and Ethereum price / volatility? Here is the chart for you to draw your own conclusions. Lets us know in comments what did you find?