Add Liquidity

Prereq: Initial Liquidity

This page covers the necessary concepts to understand the add liquidity flow in Uniswap V2, after initial liquidity is added.

Concepts

Mint

LP tokens are ERC20 tokens that are minted to the LP.

Let’s analyze the formula that calculates LP tokens to the LP.

// contracts/uniswap-v2/v2-core/contracts/UniswapV2Pair.sol:122:124
} else {
    liquidity = Math.min(amount0.mul(_totalSupply) / _reserve0, amount1.mul(_totalSupply) / _reserve1);
}

It calculates the pro-rata shares (no dilution) and sends them to the LP using the formula:

s_{minted} = \min \left( \frac{x_{in}}{x_{reserve}} \cdot s_{total}, \frac{y_{in}}{y_{reserve}} \cdot s_{total} \right)

Only deposits in proportion to the reserve ratio are accepted
- which means both token changes will be the same proportion
The formula enforces the above by accepting the minimum % change for both tokens.

Let’s look at an example:

Item	Balanced deposit	Unbalanced deposit
Pool reserves	100 ETH + 200,000 USDC	100 ETH + 200,000 USDC
Total LP shares	1,000	1,000
Deposit	10 ETH + 20,000 USDC	10 ETH + 10,000 USDC
Implied increase from X side	10/100 = 10%	10/100 = 10%
Implied increase from Y side	20,000/200,000 = 10%	10,000/200,000 = 5%
Shares minted	$\min(10\%,10\%) = 10\%$	$\min(10\%,5\%) = 5\%$

Amounts

The router computes the maximum amount of tokens A and B that the LP can deposit to preserve the pool proportions, before passing to mint:

\frac{ {\text{deposited tokenA amount}} } { {\text{deposited tokenB amount}} } = \frac{ {\text{current tokenA reserves}} } { {\text{current tokenB reserves}} }

// contracts/uniswap-v2/v2-periphery/contracts/libraries/UniswapV2Library.sol:37:39
require(amountA > 0, 'UniswapV2Library: INSUFFICIENT_AMOUNT');
require(reserveA > 0 && reserveB > 0, 'UniswapV2Library: INSUFFICIENT_LIQUIDITY');
amountB = amountA.mul(reserveB) / reserveA;

Chart

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Function Trace

In this example we will increase the pool liquidity

This is the code that runs to produce the function trace

// UniswapV2Workflows:addLiquidity:91:116
async addLiquidity({
  user = USER_1.address,
  amountADesired = 200n * _1e18,
  amountBDesired = 200n * _1e18,
  amountAMin = 50n * _1e18,
  amountBMin = 50n * _1e18,
} = {}) {
  const { erc20TokenA, erc20TokenB } = await this.initialLiquidity({
    user: USER_1.address,
    amountADesired: 200n * _1e18,
    amountBDesired: 400n * _1e18,
  });

  const trace = await this._addLiquidity(
    erc20TokenA,
    erc20TokenB,
    amountADesired,
    amountBDesired,
    amountAMin,
    amountBMin,
    user,
    this.maxUint256()
  );

  return { trace, ercTokenA: erc20TokenA, ercTokenB: erc20TokenB };
}

// UniswapV2Workflows:_addLiquidity:173:200
private async _addLiquidity(
  tokenA: UniswapV2ERC20,
  tokenB: UniswapV2ERC20,
  amountADesired: bigint,
  amountBDesired: bigint,
  amountAMin: bigint,
  amountBMin: bigint,
  user: Address,
  deadline: bigint,
  trace = true
) {
  const { router2 } = this.deployment;

  await this.transferErc20(tokenA, USER_0.address, user, amountADesired);
  await this.transferErc20(tokenB, USER_0.address, user, amountBDesired);

  await this.approve(tokenA, router2.address, amountADesired, user);
  await this.approve(tokenB, router2.address, amountBDesired, user);

  return await this.lensClient.contract(
    router2,
    'addLiquidity',
    [tokenA.address, tokenB.address, amountADesired, amountBDesired, amountAMin, amountBMin, user, deadline],
    user,
    undefined,
    trace
  );
}

EVM LENS

Function Trace

WorkflowAdd Liquidity

DescriptionSee the function trace and protocol source code

NETWORK STATUS: ONLINE

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