How to understand and use Uniswap V3 LP NFT

Although Uniswap V3 has been available for nearly a week now, Routes Blockbeats has found that there are still many users who do not understand the value and significance of NFT V3. As a result, a user recently broke the following tragedy on Twitter, a user sold his LP NFT position worth about 127,000 US dollars at the price of 1 ETH.

In order to help you better understand the value and application logic of LP NFT and avoid similar losses, we hope that through this article, we can help you to answer your doubts in using LP NFT.

What is the NFT

Simply put, NFT is short for Non-homogeneous Token, which is used to represent assets that are unique and difficult to separate. However, due to the recent NFT as the main storage carrier of the collection and art prices have risen sharply, and caused attention to the wealth effect, leading to many users will be accustomed to NFT and collection on the same sign.

In fact, in addition to collectibles, there are many real assets with unique, indivisible and other attributes. Items in games, skins, various non-standardized notes in financial markets, and so on. For example, if you buy a certificate of deposit at a bank counter, the specific attributes on the certificate, such as the amount, date, interest rate, and name of the depositor, will vary from person to person. At the same time, the bank will give each certificate of deposit a unique number. A financial instrument with a unique attribute, such as this, is well suited to the NFT standard token representation.

The significance and value of LP NFT in V3

To many casual users, the NFT in V3 may seem like a souvenir card automatically given to you after Uniswap V3 provides liquidity, but this is a very wrong idea.

Rhythm Blockbeats is here to remind you:The LP NFT in V3 is not a collection that you give to the user after you provide liquidity to make a market. This NFT represents your ownership of the funds you deposit. Any user who gets this NFT has the right to redeem the corresponding funds. If you sell or transfer this NFT, then the right to call on the money you put in is going to be transferred out with it.

How to generate LP NFT

The user does not need to do anything special to "generate" LP NFT alone, as long as the prompt successfully provides fluidity in V3(See this article on how to do this:Uniswap V3 is the first time to get started with the tutorial: a brand new market making experience"),The V3 version of the smart contract will automatically cast an NFT representing your funding position and send it to your address.Just like when you successfully provide liquidity in V2, LP tokens will be automatically generated and sent to you.

What do the symbols on the NFT interface mean

(clicklinkCan be viewed on OpenSea)

1. Name of the trade pair

2. Procedures rate corresponding to the capital pool

Each trading pair is free to create at least three pools in V3. Each pool has a different transaction rate. The rates shown here are for each pool you provide liquidity to.

3. The degree of aggregation of funds provided by LP on the original constant product curve

The shape of this curve shows the degree to which capital is aggregated. The greater the curvature of the curve, the smaller the concentration degree of funds provided by LP and the wider the price range covered.

The curve also shows whether the liquidity you are providing is currently within the available range and is generating income for you. If there is a dot at both ends of the curve, the current price of the token is within the liquidity range you provide. If the price is out of your market range, the curve becomes a ray with a peak at one end and an infinite stretch at the other, indicating that the liquidity you have deposited is idle.

4. The serial number of NFT

The moment each NFT is created, it will be sequentially assigned a unique number, which is the ID we see in the figure. The earlier the NFT is created, the smaller the value of the ID will be. At the same time, it is also easy to query the number of NFTs that have been generated by the current maximum ID number.

We can query the NFT through the blockchain browserTo generate address.

As you can see, a total of 12,293 LP NFTs have been generated across the network so far, with 7,896 addresses holding the NFTs.

5. Price range of capital allocation

Tick is a new addition to V3. In V3, the number of each tick represents an independent price point on a complete price curve.

6. The position of the curve on the complete curve

This is a thumbnail of where the liquidity you provide fits within the full price curve.

7, 8. The corresponding token address of the transaction pair

If you click on the cardlink, you can see the two strings of code spinning around the card. The two seemingly irregular codes represent the contract addresses of two different tokens in the pool. Since the cost of creating an ERC20 token on the chain is extremely low and you can name it any way you want, the contract address is the only way to confirm that the token you're buying is a real token.

As a result,If you want to access the liquidity of the V3 pool through direct purchase, please make sure that the contract address of the token is real before purchase to avoid buying a liquidity position consisting of counterfeit notes.

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