Before we get started, this is not a recommendation or endorsement to buy any token(s) mentioned.
Last week, one of the most talked about airdrops in DeFi history, finally was announced by the Ethereum L2 team at Arbitrum. Arbitrum, an optimistic rollup-based L2 with $2.75B in deposited value, will begin the process of fully decentralizing its L2 network by releasing a token called ARB. With a total supply of 10 billion ARB, the Arbitrum token will be “majority community owned” at 56%. 11.62% of tokens will be initially distributed to users and 1.13% will be distributed to DAOs in the Arbitrum ecosystem during the Arbitrum Airdrop this Thursday, March 23 at 12:40 pm UTC, based upon data taken on a snapshot on February 6, 2023. If any of your wallets ever transacted or deposited to Arbitrum, you can check to see if they’re eligible for an ARB airdrop here.
In my humble opinion, I think the distribution is slightly disappointing to not see more ARB going to the community vs the core team and investors, but this pie chart above does reflect what has become acceptable among new token distributions with >50% going to the community. I especially like the 1.13% of ARB going to DAOs who made Arbitrum the powerhouse L2 community it is today.
So what’s next? Assuming one is going to claim ARB this Thursday March 23rd, it’s likely there will be lots of trading activity around the ARB token, and what better way to earn passive yield on this activity than to be a liquidity provider on a major AMM like Trader Joe on Arbitrum.
Trader Joe does anywhere from $20M to over $100M in daily trading volume. Originally a fork of Uniswap V2, TraderJoe now offers a V2 with more advanced LP strategies (read more here). However, I still find the old school LPs with a 50/50 ratio of tokens to be easy and less stressful to manage, ideal for those who wish to have exposure to two tokens at once, like ARB + ETH. These LPs should be viewed as a trading position–LPs are exposed to the price action of 2 tokens which may or may not remain correlated. When 2 tokens in an LP move in opposite price directions, we call that impermanent loss because as a token is going up in price, we’re selling to traders as LPs and as the token is going down in price, we’re buying from traders as LPs.
Trader Joe announced it will launch 3 pool rewards for Epoch 3 (March 22nd-April 6th) related to the ARB token this Thursday after ARB becomes claimable:
- ARB-ETH with 125k JOE rewards
- ETH-USDC with 125k JOE rewards
- ARB-USDC with 50k JOE rewards
I don’t believe these LP rewards (in JOE) justify the volatility to be expected in these trading pools this Thursday, but the JOE rewards are an added bonus for LPs who i) wish to earn trading fees off ARB and ii) wish to allow their ARB to sell off at higher prices or accumulate ARB if/when prices crash. Remember, when a token price crashes, LPs = buyers and when a token price pumps, LPs = sellers.
Today, I’ll show how I can plan to deposit into a Trader Joe ARB LP this Thursday and potentially earn trading fees + JOE rewards while selling my ARB into ETH as the ARB/ETH price goes up!
How to Maximize Passive Yield as an ARB LP on Trader Joe
Before we get started, please be aware of these risks.
- Smart contract risk in Trader…
DeFi Dad is one of the earliest power users of DeFi, having worked with early Ethereum startups going back to 2018, including Zapper.
