Optimizing liquidity provision in Uniswap v3 via physics-informed neural networks

Decentralized Exchanges are rapidly changing financial markets by using blockchain technology to eliminate intermediaries. Among others, Uniswap v3 is the most prominent due to the Concentrated Liquidity mechanism, which allows liquidity providers to allocate capital within flexible price ranges, thus increasing possible revenues. This feature brings a key trade-off: narrower ranges increase both potential returns and the risk of inactive liquidity; wider ranges ensure continuous but lower profits. Thus, developing approaches for choosing the optimal liquidity provision range is becoming a predominant task both in the industry and academia. In this work, we propose a novel framework for optimizing liquidity provision in Uniswap v3 using Physics-Informed Neural Networks (PINNs). Our approach models market dynamics through stochastic processes and employs the Feynman-Kac theorem to compute the expected utility associated with the provision position as the solution of a Partial Differential Equation (PDE). This PDE is then solved using PINNs, enabling a fast approximation of expected utility. In such a way, it is possible to efficiently optimize the liquidity allocation in real-time with minimal computational cost. We assess our methodology through numerical experiments, where the backtesting results over eight pools demonstrate its effectiveness in optimizing liquidity provision performance. Thus, our results highlight the potential of the proposed framework for real-world applications.