Add Liquidity
When users attempt to add liquidity for sTokens, there are several concepts to understand beforehand:
1. Where is the Liquidity added?
All liquidity pools are created on Uniswap V3 on Arbitrum. Scattering does not retain the liquidity itself; instead, we offer a user-friendly front-end interface for users to interact with Uniswap V3. In other words, users can also directly use Uniswap V3's portal to add or remove liquidity for sTokens.
2. Why use Uniswap V3?
Here are some reasons why we choose to use Uniswap V3:
Concentrated Liquidity: Uniswap V3 introduces the concept of concentrated liquidity, allowing liquidity providers to focus their funds within a specific price range.
Improved Capital Utilization: The ability to choose price ranges allows liquidity providers to concentrate their funds where they believe there will be more trading activity. This targeted approach can result in more efficient capital utilization.
Range Orders: Uniswap V3 introduces the concept of range orders, enabling users to place limit orders within a specific price range. This feature allows for more nuanced trading strategies and can be particularly useful for traders looking to execute orders at specific price levels.
Lower Slippage: Concentrated liquidity and the ability to specify price ranges can lead to lower slippage for traders, enhancing the overall trading experience on Uniswap V3. Of course, Uniswap is safer for our users' funds.
3. How to Choose Price Range?
The Uniswap V2 model is simply not capital efficient and cannot maximize LP rewards. Therefore, in Uniswap V3, LPs have the option to select different price ranges to enhance their rewards. This is supported by calculations quoted from kfx's answer on why concentrated liquidity is more capital efficient.
[P / 4, P * 4] price range -> 2x capital efficiency
[P / 2, P * 2] price range -> 3.41x capital efficiency
[P / 1.2, P * 1.2] price range -> 11.48x capital efficiency
[P / 1.1, P * 1.1] price range -> 21.49x capital efficiency
[P / 1.05, P * 1.05] price range -> 41.49x capital efficiency
[P / 1.01, P * 1.01] price range -> 201.5x capital efficiency
Meaning that for stable pairs, v3 pools can easily be hundreds of times more capital efficient than v2. For more experimentation, the Uniswap's blog also have a nice interactive calculator at the end of the "Capital Efficiency" section.
On Scattering's Liquidity portal, we support the following price ranges: 1) 5%-> 41.49x capital efficiency 2) 20%->11.48x capital efficiency 3) 50%->3.41x capital efficiency 4) Full ranges -> 0 capital efficiency. If you choose this range, it means you are using Uniswap V2's model.
Please note:
Although a lower range will yield higher rewards, it can also easily lead to your positions being out of range. If you find that your position is out of range, you can remove it and add new positions to make it fit within the current price range.
4. Suggestions
Simply, we offer three modes:
Lazy Mode: Choose the full range. This means your positions will never be out of range.
Moderate Mode: Select a 20% or 50% price range. In this mode, your positions are less likely to go out of range.
Aggressive Mode: Opt for a 5% price range. While your positions are more likely to go out of range in this mode, it offers the highest capital efficiency and potential for the highest APR trading fees.
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