Thread by @Subli_Defi

1/17 As all #DEFI users, I had to overcome the meaning of IMPERMANENT LOSS and how to play with it. SO here is my 4 months research gathered in one thread only for you. Ping it, as it will be useful during your whole DEFI Journey 🧵4⃣->3⃣->2⃣->1⃣->👇

2/17 Problem:
a)Very few people understand the meaning of Impermanent Loss
b)People are loosing money due to IL and don’t know why

3/17 Solution 1: Use that website to see how IL works dailydefi.org/tools/imperman…

4/17 Solution 2: Theory is 🤮: As soon as you deposit two tokens into a liquidity pool which prices are not correlated (token 1 price changes in a different % than token 2 price), Impermanent Loss occurs. When you withdraw from the LP, loss becomes permanent. Let's practice ->

5/17 As a drawing is 100x better than a 17 posts thread (shit!!), let’s start with an example: I’ve 1,000 $USDT and want to invest in one token, $FOO for example (I don’t care about $FOO, this is just an example right?). So I have multiple strategy:

6/17 1) I don’t invest in the token. My Portfolio stands still, and doesn’t really bother about $FOO price variation

7/17 2) All-in on $FOO: $FOO goes to Zero I’m #REKT , $FOO goes to #Moon , @elonmusk send me there!!

8/17 3) I deposit 500$ in stable and 500$ in $FOO into a liquidity pool with 0% APR. I’m less rekted and less a moonboy than All-In strategy.

9/17 4) I keep 500$ of stable & 500$ of $FOO in my #web3 wallet. The you can see the Impermanent Loss "IL" showing his face between strategy 3 & 4. On the upper side you earn less, on the lower side you loose less.

10/17 5) Depending on the Liquidity Pool yield, IL can vary, and here you start seeing some singular points, so how do you end up by having a strategy wrt to how to manage IL?

11/17 I manage to answer the following question based on 1 YEAR Farming: At which point, it’s more interesting to exit a LP (50% stable/50% $FOO) and #HODL 100% $FOO in your #Web3 wallet:

12/17 Everything can be summarized in one chart:

13/17 So now that you know how to make your own farming strategy around Impermanent Loss, I will tell you how you can reduce your IL Impact:

14/17 Use Stable Pool, or LP that are made up of assets with correlated prices. Juicy rewards on @VelodromeFi

15/17 Use multiple tokens in a pool: This is the technology behing @BalancerLabs and @beethoven_x . Here is an example of a Pool with 8 tokens. If one token crashes, your total deposit value will be much less impacted.

16/17 Invest in pool with unbalanced token split: Again a particularity of @BalancerLabs and @beethoven_x liquidity pools. Interesting fact here, a 80/20 Pool is very close to a #STAKING solution, however you’re earning liquidity mining and fees on it! Awesome!

17/17 Above charts and analysis were made thanks to @AgilePatryk work and our discussion. Thanks a lot mate. Now you have all the tools in hand to avoid jumping in your favorite Discord and ask the team: “Why did I withdraw less money than when I Got in”. Farm safe, Farm smart!

If you like this 🧵, please retweet and share this to your friends. Article is saved on my Notion webpage also, available directly from my Twitter profile.

Thanks for the reading!