Crypto liquidity providers can be profitable by considering trading volume, volatility and other factors, the data firm says

Good morning. Here’s what happens:

Prices: Ether Holds Near $1.9K Ahead of Shanghai Upgrade; bitcoin hovers near $28K

Insight: Becoming a successful crypto-liquidity provider requires an active approach that takes into account trading volume, volatility and other factors.

Ether inches down, but betters Bitcoin

Ether fell on Thursday, but continued this week’s trend of outperforming bitcoin.

The second-largest cryptocurrency recently held steady a few dollars off the $1,900 perch it assumed on Wednesday, down 1% in the past 24 hours but up more than 5% from earlier in the week when it was below $1,800.

Investors seem increasingly excited about the Shanghai hard fork, which is slated to happen on April 12. The upgrade, also called Shapella, will mark the completion of Ethereum’s full transition to a proof-of-stake (PoS) network and enable withdrawals from ETH. .

“This hard fork will allow people to withdraw from their validator balance to their Etherium balance, which is great for increased liquidity across the market and accessibility for those trading Ether,” said Victoria Bills, investment strategist at financial services firm Banrion Capital Management , told CoinDesk TV’s First Mover program. “And one thing that we can probably expect from that is an increase in activity across the chain when it comes to Ethereum.”

To be sure, some ether observers say the impending unlocking of ETH deposited in the network to increase security in return for rewards will spur a rush of token liquidations. But others argue that the arrangement could turn out to be positive for ether because staking and capturing returns directly from the blockchain will become more accessible.

“This is a fantastic opportunity for ether and has even shown its year-to-date high,” Bills said. “As it continues to become more liquid and more accessible, we’re likely to see a lot more of that asset being traded.”

Bitcoin recently fell below $28,000, out of approx. 2.2%, after spending much of the day above that threshold, as it has for most of the past three weeks. The largest cryptocurrency by market cap has held steady as investors ponder more signs of economic contraction and potential aftershocks from the recent banking crisis.

Other major cryptos were recently in the red, albeit slightly shaded, although popular memecoin DOGE, a big winner after Twitter replaced its blue bird at the top of its home page with the crypto’s Shiba Inu dog logo, fell more than 4.5%.

Stock markets closed mixed with the Dow Jones Industrial Average (DJIA) ticking up, but tech-heavy Nasdaq and the S&P 500 falling 1% and 0.2% respectively.

Banrion’s Bills noted that bitcoin’s price has stabilized as banking turbulence has subsided. “Bitcoin had a shot through the roof when we had a lot of turmoil, and then we see it come back to a more stable state around 28K,” she said.

The keys to becoming a successful crypto-liquidity provider

A new research report that crypto data firm Amberdata shared with CoinDesk says that providing token liquidity to decentralized finance (DeFi) applications could be more lucrative than simply holding those tokens.

Liquidity providers are investors who stake their cryptocurrency tokens on DEXs to earn transaction fees, usually in the form of token rewards. Providing liquidity to crypto markets remains a key pillar of the ecosystem – with tens of billions of dollars contributed by users to smart contracts.

But becoming a successful liquidity provider is not as simple as passively depositing assets into a pool and waiting to make money. LPs must address dreaded permanent losses, smart contract risks, and exploits.

The Amberdata report provided detailed analysis of four Uniswap version 2 pools, focusing on their behavior and performance metrics.

The analysis compared dai (DAI) and ether (ETH) with ether (ETH) and USD Coin (USDC), both of which involve trading ETH against a stablecoin. It also compared the DAI and USDC liquidity pair to a DAI and tether (USDT) pair, which involves trading different stablecoins against each other.

The report found that there were significant differences in the capital efficiency and profitability of Uniswap v2 pools. The ETH/USDC pool had higher capital efficiency compared to the DAI/ETH pool, while the DAI/USDT pool had significantly higher capital efficiency than the DAI/USDC pool.

This was due to differences in liquidity between stablecoin pairs which could be attributed to factors such as market demand, availability and investor sentiment.

The demand for a particular stablecoin as a trading pair can affect the liquidity and trading volume of a pool, therefore affecting capital efficiency and profitability.

In addition, investor sentiment towards a particular stablecoin, such as confidence in its stability or market performance, can also affect liquidity and trading volume.

For traders interested in offering liquidity, Amberdata said the factors to consider are the total value locked (TVL) of a pair, the number of trades, or trading volume, per day for the pair, and the characteristics and volatility of the asset itself. .

“Our final takeaway is that offering liquidity on Uniswap v2 can be a profitable strategy for those looking for a safer way to hold crypto assets,” Amberdata analysts said. “LP strategies perform well in choppy market conditions and do not significantly differ from holding assets during uptrends and downtrends.”

The “First Mover” entered the crypto markets ahead of Shapella, an amalgamation of Shanghai and Capella, two major Ethereum network upgrades expected to happen simultaneously on April 12. Victoria Bills, Banrion Capital Management Chief Investment Strategist, joined the conversation. Ronit Ghose, Future of Finance Global Head at Citi, explained why the potential of blockchain will be measured in billions of users and trillions of dollars in value. In addition, Komainus CEO Nicolas Bertrand discussed the cryptocurrency custody joint venture of Nomura, Ledger and CoinShares.