Optimal exit from Uniswap v3 and best expected return for a liquidity provider

Dr Ankush Agarwal (Western University)

Date: Wednesday, 10th December 2025 at 3pm 

Title: Optimal exit from Uniswap v3 and best expected return for a liquidity provider

Abstract: We analyze the profitability of liquidity providers' (LPs) positions in Uniswap v3 by aggregating fee income and impermanent loss within an optimal stopping framework. Our first result shows that the liquidity burn should be optimized over one range at a time, rather than simultaneously. Second, without discounting future fees, there is no finite optimal liquidity burn time and indefinite liquidity provision is optimal. In this case, we derive closed-form expressions for the value of LP positions according to different price levels of liquidity burn. Third, with a discount factor, we introduce an equivalent rate of return and demonstrate that under a Black-Scholes model with volatility $\sigma$, the optimal return is approximately $0.425\cdot\sigma^2$ (i.e. about 10\% return for 50\% volatility), and it is achieved by choosing the at-the-money range of liquidity. These results provide explicit formulas and strategic insights for LPs in Uniswap v3, and complement recent works on Uniswap v2 and fee modelling by highlighting the distinct impact of concentrated liquidity. This is a joint work with Emmanuel Gobet.