How to Profit from Adding Liquidity Before Token Launch: $EIGEN Case Study
In this case study, we explore how some liquidity providers earned a staggering 10,000% APR and a 20% return on investment (ROI) in just 21 hours by participating in the pre-TGE liquidity pool for $EIGEN. Not Financial Advice
Introduction
Adding liquidity before a token generation event (TGE) can offer incredible rewards, but it requires strategic planning and a solid understanding of the risks involved. In this case study, we’ll explore how liquidity providers took advantage of the $EIGEN pre-TGE liquidity pool to earn a 20% return on investment (ROI) within just **21 hours. This strategy, while highly profitable, demands careful execution and monitoring to capitalize on market dynamics while minimizing risk.
Note: all data and figures mentioned in this article reflect conditions at the time of writing. Market conditions, token prices, and liquidity pool behavior can change quickly, so staying informed and verifying up-to-date information is essential for any investor looking to replicate this strategy.
1. Uniswap Position Example
To analyze the strategy, we are going to examine a position created hours before the TGE of EIGEN, the EigenLayer token.
Stats:
Return on Investment (ROI): 19.79%
This indicates the percentage gain on your initial investment. In this case, the investment has grown by 19.79% compared to the initial amount you put in.Invested Assets: 3 WETH - 0.0 EIGEN
You initially invested 3 WETH (Wrapped Ethereum) and 0 EIGEN. This means that at the start, you only used WETH to enter the position and had no EIGEN tokens.Current Assets: 2.23 WETH - 460 EIGEN
After 21 hours, your position has changed. Now you hold 2.23 WETH and 460 EIGEN tokens. This indicates that part of your WETH has been swapped for EIGEN, likely due to providing liquidity or the nature of the pool you're in.Position Age: 21h 9 min
Your position has been active for 21 hours and 9 minutes, meaning this is the time elapsed since you initially added liquidity or entered the position.
Summary:
The investor started with 3 WETH and no EIGEN, and after 21 hours, now holds 2.23 WETH and 460 EIGEN, with a 19.79% return on the initial investment. The change in asset distribution reflects that some of the WETH was converted into EIGEN as part of the liquidity position, likely earning fees or rewards during this time.
2. How to Create the Position
Liquidity providers create a V3 position by selecting a fee tier they believe the coin will use.
How can liquidity be added to a token that doesn’t yet have a real market price?
Position Info:
- Price before TGE: 0 EIGEN/WETH
- Min Limit Price: 0.00141 EIGEN/WETH
- Current Price: 0.001615 EIGEN/WETH
- Max Limit Price: 0.00168 EIGEN/WETH
The process is straightforward: add the token paired with a 'value' asset like ETH or USDC, then wait for the TGE (team LP), hoping the price moves into your target range. To open a position, an initial price must be set, which should be above the minimum limit.
However, this strategy isn't easy to execute. Liquidity providers need to account for multiple factors and details to make informed decisions.
3. How to Determine the Price Range
To determine the price range, prior data is required to reflect market sentiment regarding the asset's value. This requires publicly available tokenomics.
We use pre-market platforms like HyperLiquid or WhalesMarket to gauge the anticipated price of the asset. Personally, I prefer HyperLiquid, so let’s look at some key statistics:
- HyperLiquid Price Before TGE: ~$4
- ETH Pairing: ~0.00153 EIGEN/ETH
This explains why the investor mentioned earlier set their range as they did—positioning themselves within the expected price window after the TGE.
However, it’s not that simple. Beyond pre-market data, additional information is needed to make informed decisions, such as the real circulating supply at TGE, overall market sentiment, and smart contract specifics.
4. Risks
Understanding the risks of a strategy is crucial to mitigate potential losses and make informed investment decisions.
Key Risks:
Impermanent Loss: The value of your ETH may decrease due to the rebalancing of your liquidity position, resulting in a loss compared to simply holding the asset.
Stuck with a Low-Value Token: The token's price could drop or launch at a lower value than expected, leaving you stuck holding an underperforming asset.
Gas Costs: While opening a position may have low fees, high gas costs during exit or profit-taking could erode your earnings, or even surpass them.
In addition to these, be aware of potential vulnerabilities associated with new tokens, such as token hacks, liquidity exploits, and other unforeseen issues. Always stay cautious and informed.
Disclaimer:
The information provided by Axiomizelabs, including but not limited to research, analysis, data, or other content, is offered solely for informational purposes and does not constitute investment, financial, trading, or any other form of advice. Axiomilabs does not recommend or endorse the purchase, sale, or holding of any cryptocurrency, financial instrument, or investment. Always perform independent research and consult with a licensed financial professional before making any investment decisions.
