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The Use of Simulators Helps Traders to Maximize Efficiency on Uniswap V3

Denis Goncharenko

The growth in decentralized finance helped create many opportunities for traders and investors to capitalize in a big way. One of the capital-efficient models formed during the mass DeFi rally is automated market makers. And the leading AMM with the highest locked value is Uniswap. After launching the third version with Uniswap V3, the most popular DEX in the crypto market enabled traders to achieve higher capital efficiency while limiting impermanent losses.

Although concentrated liquidity and custom price ranges increased market depth and reduced-price slippage, it is sometimes difficult for traders to develop successful LP strategies. In addition, high gas fees are a limiting factor for many investors to rebalance their portfolios.

To overcome these early challenges on Uniswap, traders need to start backtesting strategies with mainnet data to lower risk and gain the right asset exposure. Now, this should also not be limited to only sophisticated traders who know their way around analytics tools and asset management dashboards. Everyone in DeFi should access and tap into Uniswap’s potential for efficient capital utilization.

Five Tips to Earn More on Uniswap V3

  • Use A Simulator

It’s hard to pick a trading tool that can provide accurate predictions of future market conditions and how they will affect the price. To increase the precision of these predictions in a cost-efficient way, the best option is to use simulated trading.

Tuner by Bella Protocol is one such simulator that helps traders know the increased efficiency and the extra fees through concentrated liquidity on Uniswap V3. With Tuner, you can compare strategies, analyze efficiency, conduct backtesting.

  • Know The Ideal Price Range

The best characteristic of Uniswap V3 is its flexibility. Traders can allocate their capital to a specified price range to earn high yields from liquidity pools in the form of fees. But how do they define an ideal price range?

It starts with defining the holding period and forecasted price when it ends. Traders need to select multiple levels in the simulator to check how their investment holds up at the end of the holding period. Once the price ranges are set, they can start comparing with other strategies to see how capital efficient it actually is.

It is also important to remember that no one can come up with a perfect price range that is always earning fees. It is better to have an open mind about the market structure and exit positions after proving profitability in coins with high volatility.

  • Understand Characteristics of Uniswap Pools

To devise a perfect LP strategy, traders have to recognize Uniswap has different pools running on multiple networks such as Ethereum, Optimism, and Arbitrum. So, it can be challenging to compare so many possibilities simultaneously.

Thanks to Uniswap V3 simulators like Tuner, traders don’t have to wait long to reproduce all historical events and compare the final results. Tuner makes it easy for users to create a new instance using on-chain data for backtesting without actual smart contract deployment. What is even more interesting is that Tuner is costless, there is no smart contract deployment or gas fee.

  • Measure Competitiveness between Pools

Volatility metric helps traders assess how frequently they need to rebalance their portfolios to adjust to new pricing levels. In contrast, competitiveness amongst liquidity pools helps traders understand whether they have to choose wider price ranges or not.

If the competitiveness is high, most LPs would want to capture the majority of fees. So a wide price range would be ineffective. But if there is less participation in a particular pool, then setting wider ranges would be an ideal strategy.

  • Real-Time Working Strategies

From a mathematical standpoint, traders can input some numbers and ranges to find an ideal, high-success probability strategy. By doing this, they may get accurate results in theory. But what happens in real-time?

This is where the Tuner simulator stands out. It diverges from the traditional mathematical models to predict capital efficiency by allowing traders to use customized transactions in real historical events. This means that Tuner is reproducing the exact results of the actual V3 Uniswap contract. So the strategy comparisons done inside the simulator will play out in real-time.

Rising Demand for Trading Simulators

While past events may not dictate future performance, they do form a foundation for conducting analysis and formulating efficient strategies for the future. Given that alongside the recent rise in DeFi volume, it is clear an increasing number of people will look for trading simulators to ease their DeFi activities.

However, with the rising gas fees, it is practically impossible for all types of users to experiment with different price ranges and concentrated liquidity. So simulators like Tuner will bring new functionality to the DeFi space and act as an extension to many capital-efficient models.

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