Using NFTs as LP Positions

Detailed Instructions

First, identify the token pair (e.g., WETH/USDC) and the appropriate fee tier (e.g., 0.3% for major pairs). The core decision is setting your price range, which defines the active liquidity bounds. A narrow range provides higher fee earnings per trade but requires more frequent management. Use a price chart to determine a realistic range around the current price. Calculate the tick lower and tick upper values corresponding to your chosen prices. For a WETH/USDC pool where 1 ETH = $3000, a range of $2800-$3200 might be appropriate. Ensure you have sufficient balances of both tokens, accounting for the asymmetric deposit required by your chosen price.

Tip: Use the pool's slot0 function to get the current tick and sqrtPriceX96 for precise calculations.

Detailed Instructions

Call the mint function on the NonfungiblePositionManager contract (e.g., 0xC36442b4a4522E871399CD717aBDD847Ab11FE88 on Ethereum Mainnet). The function requires a params struct containing:

• token0 and token1 addresses (order matters).
• fee: The selected fee tier.
• tickLower and tickUpper: The calculated range bounds.
• amount0Desired / amount1Desired: The maximum amounts you wish to supply.
• amount0Min / amount1Min: Slippage protection minimums.
• recipient: Your address to receive the NFT.
• deadline: A future block timestamp.

Approve the manager contract to spend your tokens before calling. The call will return tokenId, liquidity (the amount of liquidity units minted), and the actual amount0 and amount1 used.

solidityCopy
INonfungiblePositionManager.MintParams memory params = INonfungiblePositionManager.MintParams({
    token0: address(WETH),
    token1: address(USDC),
    fee: 3000,
    tickLower: -600,
    tickUpper: 600,
    amount0Desired: 1 ether,
    amount1Desired: 3000 * 1e6,
    amount0Min: 0,
    amount1Min: 0,
    recipient: msg.sender,
    deadline: block.timestamp + 1200
});
(, , , ) = nftPositionManager.mint(params);

Detailed Instructions

Your position earns fees proportionally to its share of active liquidity within the current price range. Use the positions function on the NonfungiblePositionManager, passing your tokenId, to retrieve key state variables: liquidity, tokensOwed0, tokensOwed1, and feeGrowthInside0LastX128. Monitor the current pool price via an oracle or the pool contract itself. If the price moves outside your set range, your liquidity becomes inactive and stops earning fees. Calculate impermanent loss by comparing the value of your held LP position against a simple HODL strategy of the underlying tokens. Use blockchain explorers or specialized DeFi dashboards (like Uniswap's interface) to visualize price movement relative to your range and track uncollected fees over time.

Tip: Fees accrue in real-time but are not automatically compounded; they must be claimed via a separate transaction.

Detailed Instructions

To collect fees, call the collect function on the NonfungiblePositionManager. You must specify:

• tokenId: Your position's NFT ID.
• recipient: The address to receive the tokens.
• amount0Max / amount1Max: The maximum amounts of each token to collect. Setting these to type(uint128).max will collect all available fees.

The function returns the actual amounts collected (amount0, amount1). Important: Collecting fees does not alter your underlying liquidity position or its price range; it only transfers the accrued fee tokens from the pool to your wallet. This transaction can be performed while the position is still active or after it has been closed. Regularly collecting fees can be a gas optimization strategy, as it resets the feeGrowthInside accumulators, preventing overflow issues over very long periods.

solidityCopy
INonfungiblePositionManager.CollectParams memory params = INonfungiblePositionManager.CollectParams({
    tokenId: tokenId,
    recipient: msg.sender,
    amount0Max: type(uint128).max,
    amount1Max: type(uint128).max
});
nftPositionManager.collect(params);

Detailed Instructions

You can modify the capital in your position without changing its price range. To add liquidity, call increaseLiquidity, providing the tokenId and desired token amounts with slippage minimums. The contract will calculate the new liquidity minted and update the position state. To remove liquidity, call decreaseLiquidity, specifying the tokenId and the amount of liquidity to burn. This function returns the amounts of token0 and token1 you will receive, which can be collected in the same transaction or later. When decreasing, you must also specify minimum amounts for slippage protection. These functions are essential for managing capital efficiency, allowing you to compound earnings by reinvesting fees or to partially exit a position while keeping it open.

Tip: Always check the position's liquidity value before calling decreaseLiquidity to ensure you are not attempting to burn more than exists.

Detailed Instructions

Closing a position is a two-step process: first remove all liquidity, then burn the NFT. Call decreaseLiquidity with the full liquidity value from your position state. This action pulls your proportional share of the token pair from the pool back into the position's internal accounting. Immediately after (or in a multicall), call the collect function with amount0Max and amount1Max set to the maximum uint128 to claim both your remaining token balances and all accrued fees. Finally, call burn with the tokenId to destroy the NFT and free up on-chain storage, for which you will receive a small gas refund. Verify that your wallet balances have increased by the expected amounts of both tokens, completing the full lifecycle of the LP position.

solidityCopy
// 1. Decrease all liquidity
(, ) = nftPositionManager.decreaseLiquidity(INonfungiblePositionManager.DecreaseLiquidityParams({
    tokenId: tokenId,
    liquidity: position.liquidity,
    amount0Min: 0,
    amount1Min: 0,
    deadline: block.timestamp + 1200
}));
// 2. Collect all tokens and fees
nftPositionManager.collect(collectParams);
// 3. Burn the NFT
nftPositionManager.burn(tokenId);