Uniswap leaves behind the traditional architecture of digital exchange in that it has no order book. It works with a design called Constant Product Market Maker, which is a variant of a model called Automated Market Maker (AMM).

To be more precise, Uniswap is an automated liquidity protocol. There is no order book or any centralized party required to make trades. Uniswap allows users to trade without intermediaries, with a high degree of decentralization and censorship-resistance.

Traders can exchange Ethereum ERC20 tokens on Uniswap without having to trust anyone with their funds. Meanwhile, you can lend your crypto to special reserves called "liquidity pools" they earn fees for each trade.

A liquidity pool is a collection of funds locked in a smart contract. Liquidity pools are used to facilitate decentralized trading, lending, and many more functions we will explore in this guide.

You can become a Liquidity Provider (LP) by adding an equal value of two tokens in a pool to create a market. In exchange for providing your funds, you will be earning a trading fee (0.30%) from each trade that happens in your pool, proportional to your share of the total liquidity.

How does it work?

Liquidity providers create a market by depositing an equivalent value of two tokens, e.g. ETH/CVNX. In return, liquidity providers get “liquidity tokens,” which represent their share of the entire liquidity pool. These liquidity tokens can be redeemed for the share they represent in the pool.

Let’s consider the ETH/CVNX liquidity pool. We’ll call the CVNX part of the pool x and the USDT part y. Uniswap takes these two quantities and multiplies them to calculate the total liquidity in the pool. Let’s call this k. The core idea behind Uniswap is that k must remain constant, meaning the total liquidity in the pool is constant. So, the formula for total liquidity in the pool is: 

x * y = k

CVNX price calculation 

Let’s say Alice buys 1000 CVNX for ETH using the ETH/CVNX liquidity pool. It increases the ETH amount  and decreases the CVNX amount in the pool. This effectively means that the price of CVNX goes up, because of there is less CVNX in the pool after the transaction, and we know that the total liquidity (k) must remain constant. This mechanism is what determines the pricing. Ultimately, the price paid for CVNX is based on how much a given trade shifts the ratio between x and y.

The price ranges

Liquidity providers (LPs)  essentially provide liquidity for a price curve (range).

You can set custom price ranges for which you want to provide liquidity for. This should lead to more concentrated liquidity in the price range, that most trading activity happens to avoid your fund sitting idle. 

Constantly keeping maintenance and adjusting the price range, allows you to earn more fees and effectively use of your liquidity.  

Impermanent loss

Impermanent loss happens when you provide funds to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. In this case, the impermanent loss just means a "lost profit" whereas you could sell the asset when its price increases, instead of locking in the liquidity pool.                   Pools that contain assets that remain in a relatively small price range will be less exposed to impermanent loss. Stablecoins such as USDt also will stay in a relatively contained price range. In this case, there’s no risk of impermanent loss for liquidity providers (LPs).

impermanent loss just means a "lost profit" whereas you could sell the asset when its price increases, instead of locking in the liquidity pool. 

To learn more information about the "Impermanent Loss" you can google in internet. 

Are you ready to start providing liquidity on Uniswap?

Here we guide you on how to become a liquidity provider for CVNX/ETH pool with MetaMask wallet.

1. The locked fund in the liquidity pool never leaves your wallet! Your tokens won't be sent anywhere. 
2. You will be receiving 0,3% fee of each trade in both tokens. The 0.30% fee is divided to all liquidity providers of a particular pool. For instance, if you provide 25% of the liquidity for FUN/DAI pools, you earn 25% of the collected fees. And these fees are added back into the liquidity pool.
3. You can remove the liquidity and refund your tokens any time. 
4. You can collect the reward fee without removing liquidity pools. 
5. You can add unlimited number of liquidity pools and even create more trading pairs for CVNX

Step 1. Open your internet browser (Google Chrome recommended) and go to https://app.uniswap.org/

Step 2. On the Uniswap web page make sure that "Pool" tab is active on the left-top corner.

Step 3. Click on Connect Wallet button and choose your wallet (e.g. MetaMask)

Step 4. Click on Connect button

Step 5. Once your MetaMask wallet is connected click on "+ New Position button"

Step 6.  In the Add Liquidity window you should select a token pair to which you are going to provide liquidity (ETH/CVNX). 

ATTENTION! The CVNX token is not available yet in Uniswap default tokens list. You should import the token manually once.

Step 7.  Click on "Manage Token Lists" and choose "Tokens" tab.

Step 8. Copy and paste the CVNX contract address "0xA1a4E303e9C56962F201C5e834abC1E677A3C4F3" and click on "Import" button

Step 9.   After CVNX is selected you can define the price range in which provide your liquidity

When making a price range decision, you should consider the degree to which you think prices will move over the course of your position's lifetime. You should also consider your willingness to actively manage the position as the market evolves, and the economics of transactions required to actively manage a position.
For more details please see "The price range" section above. 

Step 10.  Enter deposit amounts for both tokens CVNX and ETH, then click on "Approve CVNX".

When you enter the deposit amount for one token, the amount field of the second token will be calculated automatically according to the total liquidity pool size. 

Step 11.  Confirm the transaction in your Metamask wallet to permit Uniswap access your CVNX tokens.

Step 12. After approval click on "Preview" button to proceed.

Step 13. Please review all the details, such as the given price range, actual price, earning fee size, etc. and click on "Add" button.

Step 14.  Next, please confirm the transaction on your MetaMask wallet. 

Step 15. Once it is confirmed, you'll find your position in the liquidity pools list.

Step 17.  By clicking on your pool you can review and manage it accordingly.

- Collect fees

- Check your current price range

- Remove your liquidity any time

The Information on this website is provided for educational and purposes only. The Information contained in or provided from or through this website and podcast is not intended to be and does not constitute financial advice.

You should not make any decision, financial, investment, trading or otherwise, based on any of the information presented on this website without undertaking your own due diligence ("DYOR"). 
You understand that you are using any and all Information available on or through this website at your own risk.