Since at least 2019, Web3 projects have been incentivizing their communities to provide liquidity on decentralized exchanges. Liquidity is the lifeblood of any protocol and facilitating that liquidity in one way or another is a basic prerequisite for a successful project.

When Uniswap V2 and Sushiswap were the dominant DEXes, liquidity mining was relatively straightforward. All liquidity deposits on those exchanges are natively fungible, meaning that any deposit is directly comparable to any other one. Additionally, all liquidity deposits on those exchanges “cover” the full price range of the two assets in the pool, meaning that the AMM formula would serve up a price if token0 approached an infinite value relative to token1 and, similarly, if token1 approached an infinite value relative to token0.

Uniswap V3 is now the dominant DEX, owing largely to its more expressive functionality. But with a richer feature-set comes greater complexity. One major casualty of Uniswap V3 is that liquidity mining now requires a profound technical expertise. Even launching an incentive on the full price range — the most common approach to Uni V3 LM to date — still necessitates a degree of complexity.

Fear not, Web3-projects-looking-to-incentivize-Uniswap-V3-liquidity. A variety of teams are hard at work building solutions to simplify this process. Naturally, the team building xToken Terminal believes we’ve built the most secure, complete and powerful solution. However, we’ll still run through all the options that are out there in order to provide you with the most complete set of information.

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A basic summary of the feature sets for different Uniswap V3 liquidity mining options

xToken Terminal

Terminal is our new capital markets platform, designed to provide DeFi/NFT projects — and whoever else! — seamless and permissionless access to fundamental on-chain primitives. The first of these primitives is Uniswap V3 liquidity mining. Via Terminal, a Web3 project can have a Uni V3 LM program up and running in a few minutes. No dev work or Uniswap expertise required.

Pool sponsors select a liquidity pool and price range to incentivize, one or more rewards token(s) to pay out to LPs and an optional vesting period on rewards. Once the liquidity/rewards pool is deployed, sponsors can initiate a rewards program for any amount over any period. Once a rewards program ends, sponsors can initialize a new one. Sponsors never need to leave the Terminal UI.

Similarly, LPs never need to leave the Terminal UI. LPs do not need to mint an NFT position (the sponsor mints a communal NFT on pool deployment) or navigate to alternative UIs to deposit liquidity pool tokens. Data on staked balances, APR, pool history, etc are all generated permissionlessly and viewable on the Terminal interface.

Terminal is available on L1, Arbitrum, Optimism and Polygon.

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Gelato (G-Uni)

Similarly to Terminal, Gelato also provides a fungible interface for a non-fungible Uniswap V3 liquidity position. While Gelato does not actively rebalance liquidity positioning, the protocol provides a manager role on their contracts that allows a representative of a project to actively re-position if desired.

Gelato/G-Uni does not provide any infrastructure for staking rewards, rewards vesting or rewards data. Projects using G-Uni tokens for liquidity mining will need to deploy/configure smart contracts and build a custom frontend.

UniswapV3Staker

The UniswapV3Staker contract is the most “native” option available to projects looking to sponsor a liquidity mining program. The contract requires LPs to mint a Uni V3 NFT position and then deposit it. Rewards are paid out as a function of in-range liquidity, i.e. the more trading volume your position helps generate, the more rewards you will earn. This approach may be the most rooted in precision, but in practice it has been marred by manipulation as well as a bevy of UX challenges. It also requires deep Uniswap V3 knowledge to fully understand. Lastly, we’re not aware of a full-feature UI for projects that wish to use the UniswapV3Staker contract.

Some community members have proposed a few modifications to the contract — notably a change that requires LPs to cover a minimum price tick range. This change is likely to mitigate some or all of the issues related to manipulation of rewards, however, it is unlikely to allay any UX challenges.

Charm

Charm’s Alpha vaults rely on some of the most clever Uniswap V3 liquidity management logic that can be found in the space. Charm’s vaults rebalance in a way that avoids a direct swapping of assets, instead relying on single-sided pseudo-limit orders — a Uniswap V3 hallmark.

Sidenote: many Uni V3 liquidity managers underestimate the slippage costs and gas costs of active rebalancing strategies, thus overestimating the expected value of a rebalance. Maximizing capital efficiency at a given moment does not necessarily lead to maximization of value.

Charm is soon to release a permissionless version of their vaults (Alpha Pro). It remains to be seen whether their approach, which is well-tested and successful on high liquidity pairs like ETH<>USDC, will be performant — programmatically or otherwise — on long tail pools.

At launch, Alpha Pro will not offer the smart contract or user interface architecture for native liquidity mining.

Gamma

Gamma pursues a more active rebalancing strategy, relying at least partially on off-chain logic that is not transparent to LPs. Though decentralization advocates may protest, there may be something to be said for this more obscured approach, as purely on-chain rebalance strategies may be vulnerable to front-running or other forms of value extraction. Gamma is in the midst of remodeling their approach to liquidity management, so some elements of this description may no longer be accurate.

Gamma pools are not permissionless and there is no native liquidity mining architecture.

A Note on Rebalancing

We at xToken have been demo-ing our new platform for a variety of projects in the space. We’ve been excited by the positive feedback we’ve received on the platform’s ease-of-use, configurability and extensibility.

Several projects have asked us why we don’t offer the ability to rebalance positioning in a pool. As the product currently operates, pool sponsors must set a price range at deployment and are unable to modify that price range (although deploying a new pool with new price range takes only a few minutes). While we are exploring methods of introducing this functionality, we believe that offering a rebalance feature on a permissionless platform like ours could expose our users to frontrunning and other forms of value extraction.

Why is that? We have experience with Uni V3 repositioning from our time managing xU3LP, which for several months, was the largest provider of managed Uniswap V3 liquidity. It turns out that rebalancing must be executed very carefully, especially when the position in question is responsible for the lion’s share of liquidity on the Uniswap pair (this concentration of pool ownership is likely the case for many LM programs). In carefully researching management strategies for xU3LP, we witnessed many instances of LP rebalances being front-run by bots on-chain. In short, rebalancing large Uniswap V3 positions requires a level of expertise and sophistication uncommon in the space.

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