Comparing Top DEX Protocols: Uniswap, Curve, Balancer

Detailed Instructions

First, define your liquidity provision scenario. Choose a specific token pair, such as ETH/USDC, and an initial deposit value (e.g., $10,000 split 50/50). You must then capture the unique automated market maker (AMM) formula for each protocol. For Uniswap V3, this involves selecting a concentrated liquidity range (e.g., a price range of $1500-$2500 for ETH). For Curve, you need the StableSwap invariant, which is designed for stablecoin pairs like USDC/USDT. For Balancer V2, define the weighted pool composition, such as an 80/20 ETH/DAI pool.

• Sub-step 1: Record Initial Prices and Holdings: Note the starting price of ETH (e.g., $2000). Calculate your initial token quantities: 2.5 ETH and 5000 USDC for a 50/50 Uniswap V2-style deposit.
• Sub-step 2: Set Protocol-Specific Constants: For Uniswap V3, your position's active liquidity is only usable within your chosen price range. For Curve, identify the amplification coefficient A (e.g., A=100) for the pool. For Balancer, the pool weights are fixed (e.g., 0.8 and 0.2).
• Sub-step 3: Simulate a Price Change: Decide on a comparative price shift, such as ETH increasing by 100% to $4000.

Tip: Use blockchain explorers like Etherscan to verify live pool parameters. For example, the Curve triCrypto pool (0x80466c64868E1ab14a1Ddf27A676C3fcBE638Fe5) has a specific A value visible in its contract.

Detailed Instructions

This step requires calculating two key values for each protocol after the simulated price change. The portfolio value in the pool (V_pool) uses the AMM's bonding curve to determine your share of the reserves. The portfolio value if held (V_hold) is simply the value of your initial token quantities at the new price. The core of impermanent loss is the difference between these two values.

• Sub-step 1: Compute V_hold: This is straightforward. Using our example: V_hold = (2.5 ETH * $4000) + (5000 USDC * $1) = $10,000 + $5,000 = $15,000.
• Sub-step 2: Compute V_pool for Each Protocol: This is formula-dependent. For a standard Uniswap V2-style 50/50 pool, use the constant product formula x * y = k. If ETH price doubles, the pool rebalances. Your pool share value becomes V_pool = 2 * sqrt(k * P_new), where P_new is the new price ratio. For Uniswap V3, the calculation is more complex and depends on whether the new price is inside, above, or below your set range.
• Sub-step 3: Apply Protocol-Specific Math: For a Balancer 80/20 pool, use the weighted geometric mean formula. For Curve, solve the StableSwap equation. Use scripts or online calculators for accuracy.

Tip: For quick estimates, use an online impermanent loss calculator, but for precise protocol comparison, implement the formulas in code to handle custom parameters.

Detailed Instructions

With V_hold and V_pool calculated, you can now quantify the impermanent loss as a percentage using the formula: IL % = (V_pool - V_hold) / V_hold. A negative result indicates a loss relative to simply holding. This step reveals the critical insight: different AMM designs yield different IL outcomes for the same price movement.

• Sub-step 1: Calculate IL for Each DEX: For our 100% price increase in a 50/50 pool, classic Uniswap V2 would show an IL of approximately -5.72%. For Uniswap V3 with a wide range, IL may be similar; with a tight range, it can be far greater if price exits the range. For a Curve stablecoin pool, IL will be minimal (often <0.1%) due to its tuned invariant. For a Balancer 80/20 weighted pool, IL will be less than the 50/50 case.
• Sub-step 2: Create a Comparison Table: Organize results: Protocol | V_hold | V_pool | IL %. This visualizes the trade-off between capital efficiency (Uniswap V3) and IL protection (Curve for stables, Balancer for skewed weights).
• Sub-step 3: Analyze the Drivers: Note that Curve's low IL for similar-valued assets comes at the cost of higher exposure to peg divergence risk. Uniswap V3's concentrated liquidity can amplify both fees and IL.

Tip: Remember, IL is unrealized until you withdraw. The final net profit/loss must include accumulated trading fees, which is the next step.

Detailed Instructions

Impermanent loss alone is not the full picture. The economic viability of providing liquidity depends on whether fee revenue outweighs the IL. Fees are accrued in the pool's native tokens and are proportional to your share of liquidity and trading volume. You must estimate or obtain historical fee data for a fair comparison.

• Sub-step 1: Estimate Fee Accrual: For a given period (e.g., 30 days), find the pool's total fee volume. For Uniswap V3, fees are generated only from trades occurring within your specific price range. Use subgraph queries or analytics platforms like Dune Analytics. A sample GraphQL query for a pool's daily fees might look like:

graphqlCopy
query {
  poolDayDatas(where: {pool: "0x8ad599c3a0ff1de082011efddc58f1908eb6e6d8"}) {
    date
    volumeUSD
    feesUSD
  }
}

• Sub-step 2: Calculate Your Fee Share: Your share is (your liquidity / total pool liquidity). Multiply this by the total fees generated. For example, if you provide 0.1% of a pool's liquidity that earned $10,000 in fees, your share is $10.
• Sub-step 3: Compute Net P&L: Final Value = V_pool + Accumulated Fees. Compare this to V_hold. The protocol where (Final Value - V_hold) is highest is the most profitable for your scenario, factoring in both IL and rewards.

Tip: For active pools, annualized fee rates (APR) are often published. However, these are dynamic; always verify with on-chain data for robust comparison.