flipside

    Try Quests to earn cryptoTry Quests to earn crypto
    Share

    Uniswap LVR Analysis on Ethereum Mainnet

    Welcome to the Uniswap LVR Analysis Dashboard. This tool provides a detailed examination of Loss Versus Rebalancing (LVR) for Uniswap pools on the Ethereum Mainnet. LVR is a critical metric for assessing the performance and efficiency of liquidity provision in Automated Market Makers (AMMs) such as Uniswap. By analyzing LVR, liquidity providers can understand how their assets are impacted by market fluctuations and trading activities within the pools.

    As said, LVR (Loss Versus Rebalancing) is a metric used to quantify the cost or inefficiency associated with providing liquidity in Automated Market Makers (AMMs) like Uniswap. It helps in assessing the impact of trades and market volatility on a liquidity provider's assets. LVR is essential for liquidity providers as it measures the potential loss or inefficiency incurred due to market volatility and trading activities. This analysis helps in identifying high-risk pools and improving liquidity management strategies.

    The LVR can be measured using two primary approaches: discrete and continuous.

    1. Discrete LVR:

      • Definition: Discrete LVR measures the impact of individual trades on the pool's value. It calculates the difference between the market value of assets traded and their value according to the Automated Market Maker's (AMM) price.
      • Calculation: For each trade, the discrete LVR is calculated using: [ \text{LVR} = \text{AMOUNT0_ADJUSTED} \times (\text{TOKEN0_PRICE} - \text{PRICE_1_0}) ] where AMOUNT0_ADJUSTED represents the quantity of the asset traded, TOKEN0_PRICE is the market price of the asset, and PRICE_1_0 is the AMM price.
      • Purpose: This approach focuses on how each trade impacts the pool's value, highlighting the loss or inefficiency for liquidity providers due to trades.

    2. Continuous LVR:

      • Definition: Continuous LVR measures the impact of price volatility on the pool's value over time. It uses statistical measures of price changes to estimate LVR continuously.
      • Calculation: The continuous LVR is computed using: [ \text{LVR} = \frac{\sigma^2}{8} ] where (\sigma) represents the standard deviation of price changes (volatility). This formula captures how fluctuations in the asset prices influence the pool's overall performance.
      • Purpose: This approach provides insights into the risk associated with price volatility, offering a broader view of how market conditions affect liquidity provision.
    What is the Loss Versus Rebalancing (LVR)?
    Methodology

    Dashboard Features

    1. Pool-Specific Analysis:

      • Functionality: Users can select any Uniswap pool on the Ethereum Mainnet for detailed LVR analysis. By default, the dashboard analyzes the USDC-WETH 500 10 pool, but users can choose other pools for customized insights.
      • Purpose: This feature allows for a targeted analysis of specific pools, helping users understand the LVR for different liquidity pairs.

    2. Top Pools Comparison:

      • Functionality: The dashboard compares the top 10 Uniswap pools based on their LVR values. This comparison highlights pools with the highest LVR, offering insights into which pools may be more susceptible to inefficiencies.
      • Purpose: This feature helps in identifying high-risk pools and optimizing liquidity provision strategies.

    3. Timeframe Analysis:

      • Functionality: Users can view LVR data for the entire available history or specify a custom timeframe. The default timeframe is from 2024-01-01 to the present date.
      • Purpose: This feature provides flexibility to analyze trends and changes in LVR over specific periods, facilitating both long-term and recent trend analysis.

    Process

    • Data Aggregation: Data from Uniswap pools is aggregated daily or over specified intervals, based on the selected timeframe.
    • Calculation and Visualization: LVR values are calculated and presented through interactive charts and tables, enabling users to explore trends and insights effectively.

    This comprehensive approach ensures a detailed analysis of LVR, offering valuable insights into the efficiency of liquidity provision and helping liquidity providers manage their strategies effectively.

    References