Providing liquidity on Optimism (OΞ) works in the same manner as Layer 1 Ethereum.
Follow these steps to select a pair, a fee tier, a price range, and a deposit amount. However, network fees associated with pair creation, deposits, and withdrawals will be significantly cheaper than L1.
As a result, active management strategies such as rebalancing or reinvesting fees will be more cost effective for LPs on OΞ.
Please be aware that as an OΞ LP you will only earn fees from trading volume on OΞ. At present, there is no trade routing between L1 and L2 Uniswap protocol deployments so an L2 LP position will not earn fees from L1 trade volume.
Also note that the Optimism team expects downtime during the initial phase of the project. They will communicate planned downtime in advance. Additionally, unplanned downtime may occur without notice as OΞ pioneers this new technology.
During periods of downtime:
-
No swaps will be executed
-
No fees will be earned
-
No transactions will be possible. In particular, LPs will be unable to add liquidity, remove liquidity, claim fees, adjust price range, etc.
When the network goes live again, LPs may experience sudden price movements if L1 market prices shifted while the OΞ network was down.
Please consider the risk of network downtime when deciding to provide liquidity on OΞ. You can monitor the current status of the OΞ network here.
Updated