Uniswap v3 vs v2 LP strategy

Question

I would like to provide liquidity to Uniswap v3 protocol, but I am confused with choosing strategy for it.

As I know, two main differences from v2 is fee tiers and concentrated positions. For fee tiers it is quite clear to me, and also Uniswap suggest tier for each token pair, so I can go on with that for now. But I can't really understand what should my choice be based on concerning price range. What cons of having price range as in v2 - (0, ∞). For me it is sounds like my position will always generate fees, unlike in limited price range positions.

Why should I choose limited price range position instead of v2 like? And maybe some advice on picking those ranges, cause I have no idea from what should I derive them.

Answer 1

Each of the options has its own merits and drawbacks. For low and mid volume volatile pairs, it’s likely that using Uniswap V2 and setting a full range is the dominant option. On higher volume pairs, you might want to concentrate the range by using Uniswap V3. If you don't have a lot of capital, it's less costly to set price range using Uniswap V2 than Uniswap V3, as adjusting price ranges using Uniswap V3 can accumulate higher gas cost in the long-term.

See:

https://itsa-global.medium.com/defi-insight-concentrated-liquidity-on-uniswap-v3-9dce4e67c3e9

https://www.reddit.com/r/defi/comments/u32812/choosing_a_uniswap_v3_price_range_the_fundamentals/

This article below discusses when making a price range decision, you should consider the degree to which you think prices will move over the course of your position's lifetime. You should also consider your willingness to actively manage the position as the market evolves, and the economics of transactions required to actively manage a position:

See: https://support.uniswap.org/hc/en-us/articles/7423194619661-How-to-provide-liquidity-on-Uniswap-V3