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#aelfDeFi What is impermanent loss?
1/ Impermanent loss happens when the price ratio of deposited tokens changes after you deposited them in the pool.
The larger the change is, the bigger the impermanent loss.
#aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
1/ Impermanent loss happens when the price ratio of deposited tokens changes after you deposited them in the pool.
The larger the change is, the bigger the impermanent loss.
#aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
2/ This is why AMMs work best with token pairs that have a similar value, such as stablecoins or wrapped tokens.
If the price ratio between the pair remains in a relatively small range, impermanent loss is also negligible. #aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
If the price ratio between the pair remains in a relatively small range, impermanent loss is also negligible. #aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
3/ On the other hand, if the ratio changes a lot, liquidity providers may be better off simply holding the tokens instead of adding funds to a pool.
Uniswap pools like ETH/DAI that are quite exposed to impermanent loss have been profitable thanks to the trading fees they accrue
Uniswap pools like ETH/DAI that are quite exposed to impermanent loss have been profitable thanks to the trading fees they accrue
#aelfDeFi #DeFi #aelf What is a liquidity pool?
1/ Liquidity providers (LPs) add funds to liquidity pools.
You could think of a liquidity pool as a big pile of funds that traders can trade against.
1/ Liquidity providers (LPs) add funds to liquidity pools.
You could think of a liquidity pool as a big pile of funds that traders can trade against.
