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Uniswap: How To Add Liquidity and Start Collecting Fees!

Uniswap: How To Add Liquidity and Start Collecting Fees!

Uniswap is a protocol for decentralized token exchange on Ethereum that lets anyone quickly swap among ether and ERC20 or earn fees by contributing liquidity. We’re going to walk through how you can add liquidity.

A unique approach to liquidity

Low liquidity has constrained the growth of decentralized exchanges, and it isn’t feasible for the average trader to be a market maker. Uniswap tackles the liquidity problem by incentivizing users to contribute any amount of liquidity – no matter how small – and algorithmically pooling that liquidity to make markets.

To add liquidity, you just deposit an equivalent value of ETH and an ERC20 token into Uniswap’s associated exchange contract. The exchange rate is set by the first liquidity provider and adjusts over time through arbitrage.

Until you remove your liquidity (which you can do at any time), you earn a proportional share of Uniswap’s 0.3% fee on any trades made between the pair of assets you contributed.

So how can I add liquidity on Uniswap?

It’s simple. We’ll run through the steps using the ETH/DAI trading pair as an example:

  • Go to https://uniswap.exchange (make sure you’re logged into MetaMask or other Web3 wallet).
  • Click Pool to go to the interface for adding liquidity.
  • Then click Add Liquidity on the left side, above the Deposit field (this dropdown is also where you go to remove liquidity).
  • Uniswap now shows your connected wallet’s balances of ETH and the ERC20 token you select in the bottom dropdown. It also shows the exchange rate and your share of the liquidity pool (our share is zero so far).
    Asset balances and share of liquidity added to Uniswap
  • When you enter a value for either ETH or Dai, Uniswap autofills the correct amount of the other asset based on the current exchange rate. Remember, you add liquidity by contributing equal value of ETH and an ERC20 token.
  • You can click Transaction Details to see more info, including the number of liquidity tokens you’ll be minting and their value.
  • Next click the blue Add Liquidity button. If you’re using MetaMask, adjust the gas if you wish, then click CONFIRM in the window that pops up.
  • After the transaction confirms on the Ethereum blockchain, you’re done! The interface shows your updated ETH and Dai balances and your share of the trading pair’s overall liquidity pool. You’ll keep earning a portion of the 0.3% fee on any trades between ETH and Dai until you remove your liquidity.

Updated balances and share of liquidity added to Uniswap

Where can I use Uniswap?

You can trade ETH for tokens with the Uniswap protocol using the Swap Tool app on Settle. And you can add and remove liquidity at https://uniswap.exchange.

Even if you aren’t ready to use Uniswap, check out some of our other tools. Did you know that Settle offers the most advanced portfolio tracker in crypto… for free! If you haven’t experienced a professional portfolio management tool before, you should try it now.