The Winning & Losing With Uniswap — A DEC Story

The Uniswap mania continues with @splinterlands in-game reward token Dark Energy Crystals (DEC) now trading on Uniswap and to get the excitement going the Splinterlands team is giving away a bounty and releasing new features too. I’ve been a bit apprehensive about getting into the liquidity pool game simply because the gas fees are so high and profits can quickly be arbitraged away by eager investors with deeper pockets.

I’ve avoided the HIVE and LEO LP’s and while LEO does provide you with a bounty to make it worth your time, I’ve still felt it wasn’t a place I wanted to play in. The price appreciation on LEO has changed my mind now and missing out on those gains does make me feel a little FOMO so I’ll admit this could be the reason why I’ve looked at DEC as a second chance.

I recently jumped into the Splinterlands DEC LP pool on Uniswap and now that I have the first-hand experience I think sharing it will help a lot of players. Splinterlands appeals to a lot of players that are micro investors, and they see this opportunity and think they can jump in, and it’s not always worthwhile.

While the frenzy of gains might attract some, I thought I’d give a more pragmatic approach to jumping into liquidity pools and why I decided on DEC/ETH.

Fees, fees and more fees

Since I didn’t have any spare crypto with all mine locked up in various mechanisms I had to buy some, I purchased some ETH for the one side of the liquidity pool and then purchased some Litecoin to buy DEC.

I naturally had to pay fees on

1 — transfer money from my bank to a crypto exchange
2 — Buying ETH with my fiat
3 — Sending ETH to Metamask (exchange fees + Gas fees)
4 — Fees on buying Litecoin
5 — Fees on the on-chain transfer of LTC
6 — Fees on transfer into HIVE-Engine

Then I had to trade my Swap.LTC for Swap.HIVE

8 — Then I would have some slippage buying HIVE
9 — Then I had to pay to 1000 DEC to transfer my coins to Metamask
10 — Gas Fees to approve the liquidity pool

So If you’re not doing at least $200 — $300 on each side, you’re probably going to be left with near nothing by the time you get to the LP with all those fees.

I do think that this is a major stumbling block in general and I wouldn’t mind all the fees if it were smaller, but they all eat into your principle pretty aggressively if you’re making micro trades.

So if you’re losing about $25 — $40 or so on fees, you better make it worth your time.

Note: Remember, if you’re paying all those fees to get in, you could effectively double it because you’ll have to pay something similar to get out eventually.

The fees tend to drive users to keep their liquidity in longer because they first need to break even in their returns before they can make a profit. Then they still need to earn enough to cover the fees you will have to remove your liquidity later on, so this can sometimes be.

How you could cover your fee loss

If you’re losing let’s say easily $100 in fees, how can you ensure that you recoup your investment and scrape out a healthy profit?

Time in the market

The longer you leave your coins in the liquidity pool, the more you can earn in fees off the daily trading each day. A month may be long enough to earn back your fees depending on how large your percentage of the liquidity pool is, but most may have to keep it a little longer than that.

Time in the market, you need to assume that there will be a lot of trading of the coin back and forth on the exchange as the more daily volume going through this pair, the more you can earn in fees.

Price appreciation

The two assets you providing have a price you bought in at, and this was one of the reasons I jumped in DEC, is pretty cheap so you could pick up several thousand tokens for a few bucks.

I left some of the tokens on HIVE Engine to arbitrage and what you have top hope for is the increase in trading increases the price of DEC, the way it’s done for LEO, by the increase in demand for trading.

If the price increases, you can sell into that demand and cover your fees so you LP returns are all profit.

Bounty

Splinterlands is offering a bounty the same way LEO has, but they are giving away digital land a new NFT that they will be launching in the game. You stand a chance of winning your share of $60 000 worth of digital land, which is a pretty enticing offering and one of the reasons I jumped in to supply liquidity.

Looking at the way packs are bought up on Splinterlands, I think the land will sell like hotcakes, and the presale prices won’t last long, so if you can pick up land cheap in the beginning, you could really make a good return.

If you do get an allocation of the bounty, it will go a long way to put you in the black and maintain your profitability.

Asset income

Digital land will probably mimic the properties of physical land and can be an income-generating asset. This remains to be seen but I assume holding land is not only about trading it but developing it and allowing it to earn you more DEC in-game, this could be another way to offset the fees and increase your profits over time.

An opportunity for guilds

As I mentioned a lot of players of Splinterlands are micro-investors but may want to get into this opportunity, but since it’s not that affordable for everyone, I think group LP’s could be an option if we take a look at what @spinvest’s has down with its SPEW program, grouping investments to offset fee costs.

I think guilds will do well to copy this strategy and offer some incentives to guide members who offer up their tokens.

Originally posted on: Leofinance.io