"uniswap LP getting rich through merciless arb"
fascinating new paper from and proving that in certain conditions LPs can outperform HODL 50/50 with near-0 fee and arb-only flow
a must read
research.paradigm.xyz/uniswaps-alche
Conversation
I have been a LP on a pool where one asset went down a lot and the other went up. Here are the results so far:
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The value of my two positions had I not been an LP on Uniswap, would have been lower, I made ~$470 more as an LP.
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If were correct about AMMs, this result should be impossible.
Instead, given enough time, I might not just outperform a buy and hold 50%-50%, but might end up owning more of each tokens even though prices went in opposite directions.
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false!
It depends on how much one went up, how much the other went down, and how large of LP fees you got in the middle
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Ok. In which scenario will the following happen according to you:
Uni LP continuously bleeds value to arbitrageurs to the point where it was better to just hold 50-50 instead of becoming an LP?
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you start with 1 ETH and 600 USDC
after a year ETH is at $2400
if you LP, you end up with 0.5 ETH + 1200 USDC = $2400
if you hold 50/50 you end up with 1 ETH + 600 USDC = $3000
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You're ignoring trading fees. The whole point of this is that you're collecting trading fees.
I would have lost money too on my position if it wasn’t for trading fees.
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oh yeah agreed!
but the core of the original argument was that the fees weren't the imporatn part; I'm disputing that