How to earn rewards on Uniswap with NZDD

NZDD is constructed similarly to other stablecoins, such as USDT and USDC. Like these stablecoins, it is also possible to earn rewards on DeFi platforms like Uniswap by providing liquidity to trading pools that include NZDD. In return, liquidity providers receive payments from traders utilising the pools.

Continue reading to learn how to earn rewards on Uniswap using NZDD by participating as a liquidity provider.

How to use NZDD on Uniswap as a liquidity provider

You should be aware that NZDD is an ERC-20 token on Ethereum and Polygon. While following the tutorial, please make sure that you are connected to the networks you are intending to use.

While this guide shows you how to become an NZDD/USDC liquidity provider on Ethereum, the steps can be generalised for other networks.

First, go to https://app.uniswap.org/ and click on Pool on the top-side navigation menu. You should see this page.

Click on + New position and this interface should show. As you can see, you have the ability to choose to provide liquidity to any pair of currencies. Click on the first asset of the pair and find NZDD. 

Note: If you are a new user, you may not immediately find NZDD. In that case, enter the contract address of this token — 0x2dd087589ce9c5b2d1b42e20d2519b3c8cf022b7 — like so.

Then, click on “New Zealand Digital Dollar”. It may show a warning that the token isn’t traded in the US, but simply click on “I understand” to continue.

Setting a fee tier for your liquidity pool

The fee tier is the only way for you to earn income from your pool. Notice that there are currently four fee tiers. Uniswap (and other DEXs) work by giving priority to pools that have a lower fee tier. 

So, if you were to try to maximise your earnings by setting the fee to the highest number possible, you may do so, but at the risk of not having enough traders utilising the liquidity pool of this specification.

It’s often recommended that you select the fee tier based on what the majority of liquidity providers have chosen, in order to ensure consistent earnings. 

Setting the price range for your liquidity pool

If the price of NZDD increases significantly against USDC, your pool will have less NZDD tokens as they have been bought up by traders using USDC.

With a lower level of NZDD in your pool, you would experience an “opportunity cost” as you might have more money if you have held Kiwi dollars instead of US Dollars.

In DeFi lingo, “impermanent loss” is the same as “opportunity cost”, so keep that in mind if you come across this term.

Five percent is considered a significant impermanent loss, and that would occur if NZD is worth twice more than USD, which is highly unlikely in the short term.

For stablecoin pairs that are not too volatile, liquidity providers don’t typically worry about impermanent loss.  If you are worried about it though, you can customise this range that suits your needs.

Deposit NZDD and USDC* into the liquidity pool

The final step is to deposit both NZDD and USDC (or any other asset) to create a new pool or add to an existing one.

The relative amounts will be adjusted by Uniswap depending on the initial prices of each asset in the pair for this pool.

The takeaways

A more generalised series of steps to become a liquidity provider on Uniswap using any token pair is as follows:

1. Go to Uniswap
2. Connect your wallet to Uniswap
3. Navigate to Pools
4. Select a token pair
5. Select a fee tier
6. Set the price range
7. Deposit the tokens
8. Confirm and add liquidity

We hope this makes sense, please do let us know if you need help with this by sending us an email.