What is Smart LP? Smart LP is an automated tool to actively manage your digital assets within Uniswap V3 pools.
Why Uniswap V3?
Uniswap V3 is currently the DEX with the most significant transaction volume and trading fees. Given the current market structure and expected DEX growth, active LP management is a new, but already large and rapidly growing market with clear tangible benefits to capital providers.
Why do I need a Smart LP?
Uniswap V3 allows its liquidity providers to determine the price range of the provided assets in order to maximize the return on capital given an initially defined risk and trading strategy.
However, one managing their capital on their own would face challenges given: a) crypto assets are inherently highly volatile;
b) high gas fees on Ethereum mainnet and other fixed costs;
c) need to have expertise to design, backtest and execute their trading strategy in a timely manner.
Smart LP automatically monitors prices, rearranges positions, recompounds earned fees and splits all the fixed cost pro-rata to LPs’ deployed capital. As a result, your return on investment is higher due to frequency of compounding and lower fixed costs, while benefiting from professional market expertise and time savings.
What is a trading strategy and its risk appetite? You will find a description of each strategy and its risk level within the specific pool.
What are the key risks of providing liquidity?
Price risk - even if you provide only one asset to the liquidity pool, you are still exposed to the price movements of both assets in the pair.
Smart contracts risk - while Uniswap’s smart contract code is relatively lean and simple, it is always possible that a bug in one of Uniswap’s smart contracts is identified and exploited. The same stands with Smart LP contract risk. That being said, the Smart LP contract has been audited (please see details below) and the team has deployed its own capital in the initial pool.
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The more volatile the price action of the underlying token, the more the liquidity provider loses relative to if they simply never provided liquidity. Impermanent loss in Uniswap V3 may be more explicit than in Uniswap V2 but returns from providing concentrated liquidity are higher therefore the corresponding risk should be covered assuming an effective trading strategy is designed.