Uniswap v3 has gained excellent traction with a range of new features, including “concentrated liquidity” and fee tiers – both of which have contributed to improving the exchange’s capital efficiency.
What many may not have realized, however, is that these features have also created entirely new possibilities that aren’t as well-documented. One amazing new use of the concentrated liquidity feature is for something called a “range order”.
What is a Uniswap Range Order?
Range orders are essentially limit orders on Uniswap v3, made from the liquidity-provision end of the interface, rather than from a trader’s point of view.
The ability to place limit orders on an automated market-maker (AMM) may already sound interesting, but what’s even better is that these range orders can earn you fees rather than charge them to you. This can make a huge difference for large trades, especially when compared to centralized exchange fees. Centralized exchanges such as Coinbase typically charge users anywhere from 0.1% to 0.5% for a trade.
So, how is it even possible to earn money for a limit order? It all comes down to the fact that when you set a range order, you are providing liquidity to Uniswap – and liquidity providers earn fees for contributing to the AMM model.
Uniswap v3 users can provide liquidity at a specific price range, if they wish to reduce their risk in volatile markets. When their selected “concentrated liquidity” range is completely outside of the current market price for the pair, they are only required to supply the single relevant asset out of the two. It is only when (or if) the exchange rate reaches their specified price range that their liquidity will begin to be converted to the other asset.
Since only one of the assets is required for this scenario, the action can effectively be considered as a type of limit order – the user supplies one asset, then receives the other once their target price is hit. This concept is covered in Uniswap’s own documentation, as a recognized strategy.
There’s also some extra icing on the cake: When the maximum 1% fee tier is used for making range orders on a volatile asset, it can end up earning you multiple percentage points in fees thanks to traders and arbitrage bots as price passes through your liquidity range (“order price”).
Here’s how you can set up your very own “range” order on Uniswap v3:
- Visit https://app.uniswap.org/ and navigate to the “Pool” tab.
- From here, click on the blue “+New Position” button
- Choose the liquidity pair that you wish to set up your synthetic “limit order” for. In this case, we’re going to select ETH–USDC.
- Select your desired fee tier and the price range at which you wish to provide liquidity. For a valid range order, both the upper and lower bound must be on the same side of the current market price. This enables you to provide a single asset as liquidity.
- Enter the amount of liquidity you wish to provide, then submit your order by clicking the blue “Add” button at the bottom of the window.
- Once market price crosses through your range order, your order will be converted to the other token. At this stage, you must remove your liquidity in case the market price crosses back in the other direction (in which case it will be converted back to the original asset).
And there you have it! You’ve set your first range order with Uniswap v3 and hopefully earned some fees along the way.