Concentrated liquidity pools can improve the price of NFT collections by reducing spread and price impact when buying/selling/exchanging NFTs.
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Concentrated Liquidity is an advanced feature for advanced users who understand all facets of liquidity delivery.
These steps are specific to the current Goerli deployment and will be used as the basis for the mainnet deployment in a few weeks.
overview
Concentrated Liquidity is great for advanced investors who want more control over their liquidity positions and to achieve this on NFTX we implemented an implementation similar to DEX https://matcha.xyz.
The NFTX marketplace will use the 0x protocol to fulfill the buy/sell of tokens that occurs when buying/selling/exchanging on the platform. 0x aggregates a number of different liquidity providers (both Ethereum and Arbitrum) to give you the best price.
SushiSwap will remain the only liquidity platform that allows you to put your SLP on NFTX to earn a return on NFTX fees. However, in the example below you will see the price improvements when you have a position on Sushi and UniV3 (or any other concentrated source of liquidity supported by 0x protocol).
links for testing
- NFTX Goerli Test Branch – this branch is currently the only one with working 0x integration (https://nftx-goerli-app-v2-git-feat-enable-0x-nftx.vercel.app/).
- Goerli OpenSea – if you want to buy Havah Friends the tutorial is based on (https://testnets.opensea.io/collection/havah-friends)
- Uniswap V3 – Make sure to change your metamask to goerli chain.
Creation of a concentrated Uniswap V3 liquidity pool on Goerli
To create a liquidity pool, you need to pair the vToken (vault token) with ETH. Let’s go through step by step how to get everything you need.
What you need
gETH — also known as Görli ETH. There are a number of ways to get some, but most only offer 0.2 ETH per day. If you want to build a large position then plan ahead and get little and often, here are some links below to get you started.
In the real world, you can just buy some ETH.
vToken – These can be obtained in different ways.
- Buy from a DEX – You can buy them from the existing Sushi/Uni pools, however this will push up the price of the token (and hence the reserve price) and provide arbitrage opportunities.
- Mint into the NFTX Vault – You can mint your NFTs directly into the Vault, which will return your vTokens instead of ETH when you sell your NFTs. This gives you the tokens instantly, but you pay the coin fee (which is 10% by default but can be adjusted in the vaults). In this situation, if you minted 10 NFTs, you would only get 9 vTokens back.
- inventory staking – this bypasses the Mint fees mentioned above and probably works best for the Goerli testnet as the inventory staking timeout is only 10 minutes before you can leave your position and get all the tokens back (make sure you exit to tokens and not to NFT). On the mainnet, the time lock is 7 days, so you need to plan accordingly.
- use of liquidity – This also bypasses the Mint fees and has a shorter mainnet timeout (only 48 hours). The downside to this is that you may suffer a temporary loss and get back more/less tokens/eth than you started with.
Once you have your vTokens and Goerli ETH, you can proceed to set up your position on Uniswap.
Create your position
Now that you have yours vToken And Gorli ETH We can set up the position.
Go to https://app.uniswap.org/#/pool and connect your wallet and switch to the Goerli network.
In the next step, click on “New position” in the upper right corner.
For the Select Pair section, you want to pair vToken on the left and ETH on the right. Click on the left dropdown menu (it probably says ETH) and copy the vToken address and paste it into the search bar.
You can find the vToken address by visiting the vault on NFTX and going to the About tab and copying the vToken contract address (make sure you grab the vault contract NOT the NFT Treaty).
Select ETH as the second part of the pair.
Set the fee level you want to choose for your pair (this is the fee you charge for every trade using your pool, it has nothing to do with NFTX fees).
When setting up the first position for this pair on Uniswap, you must also provide the starting price (which you want to match against the current SushiSwap price).
When setting up a pool for a couple for the first time, you need to determine the starting price.
If a pair is already set up, you will see the current price.
Set the range for your position but add a minimum price and a Maximum price. While the price of the token stays between these numbers, your liquidity pool can be aggregated by the 0x protocol. You also have the option to choose Full Range, which gives you infinite range in the same way as SushiSwap. This negates the benefits of a concentrated liquidity position and you are much better off deploying your liquidity directly through NFTX (which SushiSwap uses).
Finally, add the amount of vTokens you want in your pool (HAVAH in this case) and the amount of ETH will be automatically calculated based on your reach.
The screen should look similar to the one below.
- Fee level: 1%
- Minimum price: 0.01 ETH
- Maximum price: 0.15 ETH (which automatically changes to 0.14958)
- Pairing 9 HAVAH tokens with 0.637504 ETH
Approve the use of your HAVAH and then create the pool (in the Goerli interface the button to create a pool was actually called Preview, but it creates the pool when you click it).
Once the pool is created, it will automatically be available to buy/sell/exchange on NFTX.
Buying two HAVAH NFTs consumes 77% liquidity from Uniswap and 23% from SushiSwap
Price Impact Statistics
To give you an idea of the improvements made by creating concentrated liquidity positions on Uniswap, we took some before and after examples of buys and sells on NFTX.
The first example is using liquidity added via NFTX (i.e. unlimited range SushiSwap liquidity pool). It was 40 tokens paired with 2 ETH.
In the second example, we removed 50% of Sushi’s liquidity and added it to Uniswap V3 in a range of 0.02 -> 0.1 ETH, which paired 20 NFTs with 1.25908 ETH.
The tables below show the price for buying/selling 1, 3, 5, 10 or 20 NFTs at a time using only the standard Sushi liquidity and also using Sushi + Uniswap V3 via the new 0x protocol.
Sushi Liquidity Only (Standard NFTX Experience)
Sushi + Uniswap V3 Concentrated Liquidity (new 0x protocol)
Graphical representation of cost per item for purchases/sales
As you can see from the graphs, the spread for buying multiple items is reduced due to the use of Uniswap’s concentrated liquidity aggregation.
Final Thoughts
Go ahead and play around with the Goerli version of the implementation available at https://nftx-goerli-app-v2-git-feat-enable-0x-nftx.vercel.app
The 0xMarketplaceZap will be deployed to mainnet in the coming weeks where another post will be made with updated links and examples of how we have ported our PUNK positions to a variety of liquidity delivery solutions.
- By providing liquidity for both Sushi and Uniswap, you can enjoy revenue generation from NFTX fees and also earn 1% fees on trades through Uniswap. This will lower the spread and tighten floor prices, leading to more activity in vaults and hence higher fees.
- At the moment, aggregators like Gem/Genie do not route via the 0x protocol, so the best price for NFT collections with concentrated liquidity will be at NFTX. We are working with the aggregators to ensure the improved price can be implemented soon.
- There will be situations where only uniswap liquidity is used for the buys/sells and the return generated by NFTX continues to go to the staked liquidity providers (even if their liquidity has not been used).
- With multiple liquidity pools across a variety of DEXs, in addition to the traditional arbitrage of NFTs, there are now additional arbitrage opportunities between pools.
- MEV/arbitrage bots can use the new approach to generate better returns.
Remember that besides SushiSwap, not only is UniSwap available, but 0x supports 28 different liquidity sources on the mainnet alone
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