Why is Uniswap mining profitability so high (Why are Uniswap gas fees so expensive)?

08/12/2023 15:30 • Crypto & Markets • 54 views

Why is Uniswap mining profitability so high? How are UNI mining fees calculated? What is the mining algorithm for Uniswap? How is this fee calculated?

In the field of decentralized finance, the most common trading method is called “Automated Market Maker” (AMM), where users deposit their assets into smart contracts and earn profits by exchanging them through AMMs. This model can be understood as token rewards or governance voting rights for liquidity providers in a liquidity pool.

When Uniswap mining starts, its value can skyrocket from a few cents to tens of thousands of RMB. However, because Uniswap has not yet issued coins, many projects cannot participate in mining.

According to official information, there are currently over 400 wallet addresses on Uniswap that have staked and locked ETH and corresponding tokens as rewards for liquidity providers. Based on this transaction volume, it would require approximately 1 billion RMB in assets to enter mining. Of course, if you don’t have the computational power and enough capital, the cost of mining may be very low because you may not want to use all your tokens for mining. Instead, you may want to mine more and not let others know your investment strategy, but directly approach them for the funds they are willing to invest.

However, for ordinary investors, Uniswap mining can be troublesome because most people do not have the skills and can only use various tools or software to develop their own systems, protocols, etc. to make money. For example, applications like Uniswap, which are built on the Ethereum network, and some teams have even designed an open-source code library to help them achieve certain things.

Since Uniswap mining does not require gas fees, it can be considered to be quite profitable. However, over time, we can see more and more funds pouring into the Uniswap mining ecosystem. So why is Uniswap mining profitability so high now? From a technical perspective, Uniswap mining can be mainly divided into three types:

1) liquidity providers;

2) exchanges;

3) lending platforms. The income generated from Uniswap mining is completely consistent with Uniswap’s revenue, that is, a portion of the mining produces fees for liquidity and transaction costs. Some LPs will charge certain fees (the specific amount is determined in real-time on the official website), while another portion will be charged a certain percentage of fees (as shown in the figure).

Here, it is important to note whether mining can achieve a higher annual return rate. If a project’s annual return rate exceeds 20%, then mining can generate more income.

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Why is Uniswap mining profitability so high (Why are Uniswap gas fees so expensive)?

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