Step-by-Step Guide to Farming Your Liquidity
1) First, you actually need to hold some PRICE in your wallet. If you do not already own PRICE, buy some as described here.
2) Second, you need to open up Uniswap V2’s liquidity pool by clicking on this link. The PRICE-ETH pair will be displayed. Make sure to connect your wallet by clicking on “Connect Wallet”.
3) You can then type in the amount of PRICE and ETH you want to provide to the liquidity pool (click on “Supply”). Note that you can also always remove your liquidity from the pool at any time. You can also change from ETH to USDT or other tokens by clicking on ETH.
4) You can then view your liquidity pool and its earnings here: https://v2.info.uniswap.org/accounts.
Type in your wallet address to see the liquidity you are farming and the total fees you have generated already. In the example below, the pool earned USD 0.68 on a first trade of about USD 200. The earnings grow the more the pair is traded on Uniswap and they can range between 0-300+% annually. How exactly can your earnings be calculated is explained in the next section.
How does it work?
Like other decentralized exchanges (DEX), Uniswap charges a fee 0.3% on every trade, which is then passed on to all liquidity providers proportional to their share of the liquidity pool.
Liquidity can only be provided in trading pairs. A typical trading pair would be PRICE-ETH, but PRICE can be paired with any other ERC20 token, such as PRICE-USDT, PRICE-USDC, PRICE-LINK, or PRICE-UNI, for example.
Let’s assume you would provide total liquidity in PRICE-ETH worth a total of USD 1,000. We assume that this would account for 1% of the liquidity pool given that the initial liquidity is 100,000 USD. Below you see four illustrative examples how the annual percentage yield (APY) could be calculated (only illustrative and simplified examples). In scenario 0, with very low levels of trading of 0-1,000 USD per day, you would earn about 0-1% per year.
In a more typical and realistic case, assuming that the daily trading volume for $PRICE would reach 10% of the liquidity pool, you would earn around 11% on your investment.
The APY could go up further, however, if the trading volume reaches (scenario 2) or even goes beyond the total liquidity provided (scenario 3). In such highly optimistic scenarios, you may earn up to 100-300%.