Recently , Alex tweeted about uniswap V3 LPs on ETH/USDC have lost an estimated $100 million and questioned uniswap V3 data services and strategy research. Blockin.ai team have been working on PnL studies of LPs and Pools in uniswap V3. We have a further study on the profit situation of uniswap V3. Hopefully we can offer valid data proof for the proposition whether LPs are continuously losing money . Related tweet:

To figure out the effect of different pool type on the yield of the pool , we summarized all positions since the creation to Oct 26 2022 targeting at 709 pools with TVL is larger than 52 ETH and more than 5 s wap events happened in the pool. We can get the hourly rate of return of the pool by calculating the fees、IL、net value and gas earned by the position per hour . Besides we accumulate the mining APR and net APR of the entire pool in the past 6 months and since the creation of Uniswap V3.

To distinguish the pool type(Stable coin、Unilateral Stablecoin、Non-stable coins),we regard DAI、USDC、USDT and YUSD as stable coins with higher reputation . The rest are non-stable coins . And then we classify the pools.

From the perspective of PnL distribution of different pool types , 86.27% of unilateral stablecoin and 79.15% of stablecoin their net APR is less than 0 since their creation .The median net APR returns -52.64% and 63.08% respectively . The net APR 75% percentile of non-stable coins has even reached -67.56% in the past 6 months . This indicates that over a long period of time ,most unilateral stablecoin and non-stable coin are losing money . Although the mining return of non-stable coin pool is very low , the overall return of 70% of the stable coin pool is positive . The stable coin pool that profit in the past 6 months has reached 90%. Even though net APR 75% percentile is less than 10%.

By ranking the pools , we found that among the top 20 pools in TVL , there are 14 pools their net APR is negative in the past 6 months . And 12 pools’ net APR is lower than -50%,while only 4 large pools’ net APR is positive since the creation of the position and the highest is less than 10%. Besides there are 9 pools’ net APR is lower than -50%.

Take USDC-WETH 0.3% pool as an example , we drew line graph (single day and accumulative)of fees、IL and net value from all the positions and positions of confirmed loss already . And it was found that fees could not cover the IL at times so result in the accumulative net PnL of -$112.8 million.However there were times that net PnL raised .Such as the cumulative PnL from -$81.96 million to $42.17 million between middle June 25 2021 to Dec 1 2021. And from Jun 18 2022 to Oct 26 2022, cumulative PnL increased from -$185.3 million to -$114.3 million.

According to the statistics of 84,129 LPs with mining records in Uniswap-V3, 58925 LPs are losing money, with a loss ratio of 70.04%. In addition, 43.64% of LPs had a net APR less than -100% during mining. Only 11.85% of LPs had a net APR greater than 100% during mining (average mining duration is 35.26 days).

Some people think that large scaled fund institutions with professional teams may be able to stop the loss. Actually we found that among the top 20 LP addresses with the largest total net value of positions in Uniswap-V3 at present, only 5 LP addresses are profitable, and only 2 large firms have positive net APR after estimating net APR per unit net worth. Only one of the LP’s net APR reached 2730.19% (this LP actually mined for only 10 hours on Nov 10 2022) and another LP has a net APR of 12.11% (this LP has been mining since Jun 16 2022).

What is it that underpins the willingness of these LPS to mine in Uniswap-V3 despite continuing losses?

We checked the mining behavior of LPs with the current largest net value in the USDC-WETH 0.3% pool(LP address: 0 x741aa7cfb2c7bf2a1e7d4da2e3df6a56ca4131f3). Since May 26 2021 for the first time this LP started to mine in this pool, he continued to adjust the position and constantly adjust strategies like the frequency of adjusting positions etc.. However, his PnL curve shows that except for a few times PnL curve tilted upward, most of the time the losses were mounting. It is therefore reasonable to suspect that such investors may have hedged in other protocols to cover their losses in uniswap V3 or that uniswap V3 is used as an option hedging tool for other token strategies.

We also checked the ranking of LPs with the highest historical PnL in USDC-WETH 0.3% pool. We selected two LPs with mining activities in the last month and found that they have the same characteristics. They started mining in Jun 2022 and set an extremely wide upper and lower range . Also they adjusted positions at a very low frequency or even not adjusted positions at all. From the perspective of risk indicators, sharpe values of both of them are higher than 2 with maximum drawdown rates of 19.09% and 9.54%. And daily PnL ratio is 94.20% and 103.03% respectively.

The difference between the two LP strategies is that the lower interval of LP1 is relatively narrow at about 1000 USDC/WETH. So the risk exposure of USDC standard reaches 90.51% . And the downside risk is 290.47. The lower interval of LP2 is set at approximately 552 USDC/WETH so the exposure on the USDC standard is 46.57% and the downside is 122.48.

It’s not hard to find out that the main reason for the profitability of these two LPs is that the price has been relatively stable since Jun 2022 and has not fallen sharply. Even when the token price fluctuates, the price is between the upper and lower limits, and IL has not been confirmed.

LP1 address: 0xdc848a72842d943b87926ae27ee05f1e949ec931

LP2 address:  0xc84def0f58df9f25f1099ed477da7b27ac422ade

Uniswap V3 has a variety of profit models. Not all LPs calculate PnL with usd standard. Some LPs also take the increase of the number of a certain token as the profit target. Therefore we calculated the cumulative PnL of every pool with token0 and token1 as the standard currency respectively.

Surprisingly, from the performance of the top 20 pools by TVL, it is found that 13 pools are losing money regardless of calculating the IL by token0 standard or token1 standard. The pools associated with WETH are both in the state of loss regardless of IL of token0 or token1 standard except for UNI-WETH 0.3% pool. In the normal cognition, an increase of the IL of token0 means a decrease of the IL of token1. When both sides lose money at the same time, it’s difficult to imagine who actually profited. Because after all the users who exchange tokens also think that they suffer losses due to the slippage.

Recently, due to the FTX crisis, the credibility of the CEX is dubious. This has led to a sharp increase in trading volume on the DEX in a month. Like the trading volume of uniswap V3 trading increased by 898%. With the same TVL higher trading volume means that fees will increase, which brings hope for LP. Taking the USDC-WETH 0.3% pool as an example, the average daily trading volume of this pool is $116.4 million and the average daily trading volume has been more than $186.7 million. So when TVL stabilizes at the current level and the trading volume reaches more than 1.6 times of the current level, fees will be able to cover the IL and most LPs will be able to profit.

As AMM's typical protocol , Uni V3’s trading volume currently take up more than 50% of Ethereum DEX trading volume. If users reinforce their belief in DEX from this , it will be a turnaround for LPs in Uniswap V3.