The Ethereum blockchain is home to several thousands of smart contracts and DeFi projects. That is not surprising as the main importance of the Ethereum blockchain is to facilitate the deployment of smart contracts.
Although high gas fees and low transaction speed are common problems with deploying smart contracts with Ethereum, several developers still prefer it as a go-to blockchain for their projects.
However, to launch a smart contract, adding liquidity is important for trading on Decentralized Exchanges.
Liquidity is a pool of funds created to facilitate the instantaneous buying or selling of a token. Without liquidity, it will be almost impossible for traders or investors to buy or sell a token.
However, developers must create a liquidity pool with Uniswap before locking with third-party liquidity lockers.
To create liquidity, the new token must be paired with the base currency of its blockchain on DEX.
Uniswap is the largest and most popular liquidity provider for ERC-21 tokens.
Liquidity pools on Uniswap provide a trading venue for a pair of Ethereum-based tokens. Therefore, it facilitates buying and selling of the tokens on Uniswap.
Before you can lock liquidity provider tokens, you must first create them on Uniswap.
Step 1: Supply Liquidity on Uniswap
Here is a quick overview of how to supply liquidity on Uniswap V2.
- Connect Metamask wallet on Uniswap
- Swap Ethereum for the token
- Navigate to Pools
- Add Liquidity
1. Connect Metamask wallet on Uniswap
To create liquidity for a token on Uniswap, you need an equal value of the token and Ethereum.
You can easily swap Ethereum for the token by visiting Uniswap.org.
On the homepage, click on Launch App to go to the DEX.
On the swap page, click CONNECT on the top right corner of Uniswap.
A connection prompt will appear in your Metamask. Accept the connection to link your Metamask wallet to Uniswap.
2. Swap Ethereum for the token
After connecting your wallet, choose Ethereum as the base token.
On the second field, search for the token you want to provide liquidity for. Alternatively, you can paste the contract address from Coinmarketcap.
After searching for the token, click Import to add the token to Uniswap.
Finally, input the amount of Ethereum you’d like to swap for the token. Ensure you have enough Ethereum for gas fees and liquidity provision too.
Since Ethereum’s gas fee is high, you can swap 1/3 of your ETH balance for the token. With this, another one-third can go to liquidity, while the last third can serve as gas fees.
Finally, click SWAP and approve the transaction in your Metamask.
After swapping Ethereum with the token, you can now provide liquidity for the token on Uniswap.
Visit Uniswap V2 app here (https://app.uniswap.org/#/pool/v2?chain=mainnet)
Before you proceed to add liquidity, click on ‘Connect To A Wallet’ in the top right corner.
Choose Metamask to connect your wallet to Uniswap.
Afterward, approve the connection in your Metamask wallet.
4. Add Liquidity
In the pool, choose Ethereum and the other token.
Specify the amount of token you want to add to the pool. You can either input the amount of Ethereum or the other token. Either way, Uniswap will automatically calculate the equivalent value of the other token with the current market price.
Approve the token by tapping APPROVE. Accept transaction in the prompt that pops up in your Metamask wallet.
Finally, click SUPPLY to add your capital to the Liquidity Pool. Confirm Supply in Unswap and approve the transaction in Metamask.
Step 2: Locking LP Tokens
Now that you’ve created liquidity and LP tokens, you can now lock them. It is important for liquidity tokens to be locked. Unlocked liquidity often leads to rugpull, where token developers can freely remove liquidity from a token.
Once developers withdraw all the liquidity, the token loses its value, preventing investors and traders from trading the token.
Liquidity can be locked by renouncing ownership of the Liquidity Pool tokens and locking them up in a time-lock smart contract.
Although you can create liquidity on Uniswap, the DEX does not provide a liquidity locking service. Fortunately, you can lock LP tokens in a time lock contract on third-party lockers like Unicrypt, which supports Uniswap LP tokens.
Here is how to lock Uniswap V2 Liquidity Provider tokens on Unicrypt.
- Visit Unicrypt App and choose Liquidity Locker
- Select Preferred Network
- Lock Liquidity Provider tokens
- Specify Pair Address in Unicrypt
1. Visit the Unicrypt App and choose Liquidity Locker
On your browser, visit Unicrypt.network.
On the top right corner of the homepage, click LAUNCH APP to go to the Unicrypt app.
Under Unicrypt Services, choose Liquidity Locker.
2. Select Preferred Network
Next, you have to specify the blockchain network and the DEX that provided the liquidity (Uniswap V2).
Afterward, you can connect your wallet by tapping the CONNECT WALLET option. Choose Metamask as the preferred wallet and approve the Metamask prompt to link your wallet.
For the final step, you need to specify the address of the pair you want to lock liquidity for.
3. Specify Pair Address in Unicrypt
To lock liquidity on Unicrypt, you must provide the pair address for the token pair you want to lock its liquidity.
To access the pair address, go to the Uniswap V2 analytics page.
On the top right corner of the analytics page, tap the search bar. Search for the pair you provided liquidity for.
Once you’ve found the pair, scroll to the bottom of the page. Under pair information, copy the Pair Address.
Paste the pair address in the box provided for ‘Uniswap V2 Pair Address’ in Unicrypt.
4. Lock Liquidity Provider tokens
Once you’ve specified the pair address, the Unicrypt API will confirm the address and load up the pair. It will also display the balance of your LP tokens.
Specify the amount of LP tokens you want to lock. Alternatively, you can choose various percentages in the option provided.
After specifying the amount, choose the preferred lock time. Note that, once they are locked, they cannot be withdrawn before the unlocking date.
Finally, choose the preferred fee option from the ones provided. Fee options on Unicrypt include:
- First option for Regular Locks: Flat fee (ETH,xDai,BNB) + 1% of LP tokens Locked
- The second option for Big Locks: UNCX Burnt + 0.6% of LP tokens locked.
Confirm the fee option and approve the lock.
When you supply liquidity to a token, liquidity provider tokens are minted and sent to your wallet address.
These tokens represent your contribution to the token’s liquidity pool. It also represents the proportion of your contribution with respect to the total liquidity of the token.
This enables liquidity providers to earn a small percentage of every transaction on the token.
You can view your LP earning and LP token information on the Uniswap V2 analytics page.