LP pools’ fee return from Uniswap v3
Uniswap v3 currently has three different fees for liquidity provider (LP) pools — 0.05%, 0.3% and 1%. Given the three choices, which fee tier gets the highest return overall and whether the pools with the highest fees earned also have the highest return? This article compares the total fees earned and the fee return from the three different fee tiers in Uniswap v3, along with the total value locked (TVL), trade volumes and pool efficiency to see if there are any correlations among them.
Since May 2021, the 0.3% fee pool (pink bars below) has been generating the highest total fees in USD. Looking at the fee return in %, which is calculated as (total fees earned / TVL), 1% fee pool has the highest average return.
Average pool return (%):
- 0.05% pool: 0.1%
- 0.3% pool: 0.2%
- 1% pool: 0.5%
Pool Return vs. Total Value Locked (TVL)
In terms of TVL, the 1% pool has the lowest TVL of around 100 million USD; whereas the 0.3% pool has on average 1 billion and the 0.05% pool has 450 million.
There seems to be a negative correlation between the fee return and the TVL i.e the higher the TVL in a pool, the lower the fee return. Using the Pearson’s correlation as shown below, the negative correlation does exist for the higher fee pools, but it’s not the case for the 0.05% fee pool.
Correlation between TVL & fee return (%):
- 0.05% pool: +20%
- 0.3% pool: -32%
- 1% pool: -46%
Pool Return vs. Efficiency
The efficiency is calculated as (total trade volume / TVL). It doesn’t seem like there is any observable correlation between the efficiency of the pool and the return of the pool. The efficiency in all the fee tiers has been quite low i.e. trade volume is much lower than TVL. But since September the efficiency has picked up, especially for the 1% fee pool.
Pool Return vs. Trade Volume
There is also no obvious correlation between the pool’s return and the pool’s trade volume. The 0.05% pool has more volume in May whereas in the recent periods it has significantly dropped; the 0.3% and 1% pool have picked much more volume.
Top Earning Pools
Looking at the total fees earned for each individual LP pool, 6 out of the 10 highest total fees are from the 0.3% pool; whereas only 3 from the 0.05% pool and 1 from the 1% pool. USDC-WETH and WETH-USDT seem to be earning high fee for both the 0.3% fee pool and the 0.05% pool.
For WETH-USDT pool, the 0.3% fee pool also has the highest TVL and generates most of the total fees earned in USD. However, the 1% pool has the highest fee return in % of TVL. These conclusions are the same as the overall conclusions for all pools. The average fee return from WETH-USDT pool is 0.5%.
Return for each fee tier (%):
- 0.05% pool: 0.2%
- 0.3% pool: 0.5%
- 1% pool: 0.7%
For USDC-WETH, the same conclusions are drawn as before where the highest fees earned in USD is from the 0.3% fee pool and the highest fee return in % of TVL is the 1% fee pool. The average fee return from WETH-USDT pool is 0.6%.
Return for each fee tier (%):
- 0.05% pool: 0.6%
- 0.3% pool: 0.4%
- 1% pool: 0.8%
Conclusion
Based on the analysis of the different fee tiers, the fee return, TVL and trade volume, the following conclusions can be made:
- The highest total fees earned in USD is the 0.3% pool.
- The highest fee return in % of TVL is the 1% pool.
- 6 out of the top 10 pools by total fees earned are from the 0.3% pool.
- For 1% and 0.3% fee pool, it seems the higher TVL, the lower the pool return.
- There is no obvious relationship between pool efficiency and pool return.
- Also no obvious relationship between trade volume and pool return.
- Most of the fees are earned from the WETH-USDT and USDC-WETH pools. The conclusions from the overall also hold for these two pools.
Note: August 3rd data has been excluded in all graphs as it’s an outlier with extremely big daily values.
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