Decentralized Finance (DeFi) and decentralized exchanges have witnessed insane growth in recent years. Decentralized exchanges (DEX) offer several benefits, including access to a broader array of trading pairs to lower trading risk, lower transaction fees, and decreased counterparty risk since no intermediary is involved in the security and management of private keys.

A decentralized exchange that is gaining immense popularity in the crypto space is Uniswap- a decentralized and dedicated open-source protocol, for automated liquidity provision for Ethereum token trading pairs.

Unlike a decentralized exchange, Uniswap doesn't employ an order book to determine an asset's price like a centralized exchange does. Instead, the platform pools token into smart contracts and offers users the opportunity to trade against the liquidity pools.

As such, Uniswap is ideal for liquidity providers who receive lucrative rewards for providing an equal value of ETH and ERC-20 tokens to the Uniswap exchange contract. Here is a look at the top 5 most lucrative trading pairs for liquidity providers on Uniswap.

Uniswap Overview

Launched in November 2018, Uniswap is a decentralized exchange protocol launched on the Ethereum Mainnet. The protocol was developed by Hayden Adams with support from the Ethereum Foundation grant.

The platform is built on the concept that liquidity for exchange transactions is provided in on-chain pools, which are equal in value with both ETH and one traded ERC-20 token.

On Uniswap exchange, trades are executed against on-chain pools. The protocol leverages an automated market making (AMM) strategy to allow for the exchange of trading pairs without order books or other counterparties synonymous with centralized exchanges. Uniswap charges low trading fees (gas) compared to other DEX, thanks to the smart contract design.

Role of Liquidity Providers on Uniswap

Liquidity providers are essential to the Uniswap exchange to function as intended. Trades on Uniswap cause price slippage, which worsens when the trade is bigger than the provided liquidity. Therefore, the platform requires a large liquidity pool to function effectively.

Liquidity providers come in handy to enhance the platform's liquidity pool by supplying equal ETH and ERC-20 token values. In return, liquidity providers are offered a proportional split of the transaction fee from all existing trades.

The liquidity providers are also offered tokens from the exchange contract, which they can use to withdraw their portion of the liquidity pool at any time. The liquidity providers have access to numerous trading pairs, each with different terms and rewards. Uniswap is the most trustless DeFi protocol/product currently available.

Top 5 Most Lucrative Trading Pairs for Liquidity Providers on Uniswap

yfi.mobi ($YFIM): YFIM/ETH trading pair

Pair Stats

Total Liquidity: $6, 990, 036

Volume (24 hrs): $7, 027, 984

Fees (24hrs): $21, 084

Pooled Tokens: 12, 028 YFIM and 9, 074 ETH

YFIM is independent of YFI technology. The protocol functions as a decentralized application and builds up multiple protocols. The protocol offers the automation of yield farming strategy via lending pools. The protocol provides different functionalities to DeFi users by transferring their digital assets into liquidity pools.

On Uniswap, the rewards tokens are mined by transferring the funds from one asset to another. Once users deposit their liquidity in the platform's pools, they receive YFIM tokens indicating the amount of deposited funds. yTokens are staked to earn YFIM.

By adding liquidity to the YFIM/ETH trading pair in Uniswap, users participate in mining and receive YFIP tokens. YFIM/ETH trading pair has lucrative returns with up to 110% liquidity.

Augur ($REP): REP/ETH trading pair

Pair Stats

Total Liquidity: $192,738

Volume (24 hrs): $33,062

Fees (24hrs): $ $99.19

Pooled Tokens: 6, 497 REP and 250.81478 ETH

Augur (REP) is a decentralized prediction market platform based on the Ethereum network. The project's concept is to employ the “wisdom of the crowd” in predicting the outcomes of different events.

Users use the “Reputation” token (REP) to bet on the outcomes of different events such as results of sports matches, outcomes of elections, weather forecasts, companies performance results, etc. To place their bets, users can either create new events on the platform or participate in existing ones. When users correctly predict an outcome, they get a payout, sent to their ETH wallets.

Augur is powered by REP- an ERC-20 crypto coin. REP is a PoW coin, meaning that it can be mined on the same hardware used for Ethereum. REP/ETH trading pair on Uniswap has lucrative returns for liquidity providers with an annual percentage rate (APR) of 41.62%

LCX.com, the Liechtenstein Cryptoassets Exchange ($LCX): LCX-ETH trading pair

Pair Stats

Total Liquidity: $99,018

Volume (24 hrs): $35,752

Fees (24hrs): $107.26

Pooled Tokens: 4, 507, 597 LCX and 123.34155 ETH

LCX is a DeFi company that focuses on the tokenization of assets, security token offerings, and advanced trading tools. LCX, the Liechtenstein Cryptoassets Exchange, is based in Liechtenstein and operates in accordance with the Token and Trusted Technology Service Provider Act (TVTG) also known as the new Liechtenstein blockchain laws.

LCX’s second layer protocol built on Uniswap is enabling limit orders on Uniswap. Limit orders for Uniswap are available at the LCX DeFi Terminal, which is a decentralized trading platform with beautiful charting, trading view integration, and smart DeFi indicators such as liquidity and volume charts.

LCX is an ERC-20 utility token that is used to pay all fees associated with the services offered by LCX AG. The token can be used as a voucher to pay fees such as LCX Terminal subscription fees, fees for custodian solutions LCX Vault, fees for exchange transactions for all crypto assets, as well as other fees within the LCX ecosystem.

LCX/ETH is somewhat a new pair on Uniswap and comes with lucrative rewards of up to 45 annual percentage rates of APR Pools and their earned fees are public. Here is the $LCX token pool which roughly earned 10% yield per month. You can add liquidity to the $LCX trading pair on Uniswap here.

Wrapped Bitcoin ($WBTC): WBTC/ETH trading pair

Pair Stats

Total Liquidity: $ 796'465'699

Volume (24 hrs): $ 23'553'615

Fees (24hrs): $ 70'661

Pooled Tokens: 27'768 WBTC and 992'040 ETH

Wrapped Bitcoin (WBTC) was created to facilitate blockchain interoperability. The coin is designed to integrate the key features of Bitcoin, notably value and stability to the Ethereum blockchain, which is facing an ever-growing ecosystem of decentralized applications.

WBTC seeks to improve Bitcoin for decentralized use cases within the Ethereum ecosystem by standardizing Bitcoin to the ERC-20 format. Trading WBTC/ETH on Uniswap is lucrative, with an APR of 3.06%.

Bloom ($BLT): BLT/ETH trading pair

Total Liquidity: $ $72,945

Volume (24 hrs): $13,489

Fees (24hrs): $40.47

Pooled Tokens: 755, 826 BLT and 95.21123 ETH

Bloom is a decentralized credit scoring protocol powered by Ethereum and IPFS. The end-to-end protocol is used in risk assessment, identity attestation, and credit scoring. The ecosystem banks the unbanked by giving them access to secure and borderless access to credit services.

The protocol offers a novel approach to credit risk assessment, leveraging blockchain where both the digital asset and traditional fiat lenders can issue loans at competitive fees and enhance creditor experience.

Bloom protocol is powered by the Bloom Token- a utility token that allows organizations to evaluate user identities and creditworthiness. BLT also serves as the voting token to guide the evolution of the bloom protocol.

In addition, BLT serves as a voting mechanism for instituting changes to the bloom phases and algorithms. Trading BLT/USD on Uniswap has lucrative returns of up to 36.46% APR.

Conclusion

Uniswap is a decentralized exchange (DEX) that allows users to directly swap ERC20 tokens without an intermediary. The platform allows anyone to swap tokens, add tokens to a pool, earn rewards, or even list a ticket.

Liquidity providers are crucial for the Uniswap ecosystem by providing equal ETH and ERC-20 token values to prevent price slippage. In return, liquidity providers are offered rewards in the form of transaction fees, which is split equally between all existing providers. Liquidity providers are also given access to over 100 trading pairs, each with different annual percentage returns. The trading pairs discussed in this article offer lucrative returns and are ideal for any avid Uniswap liquidity provider.