1/ π DeFi Pulse Drop #21: @IntegralHQ π
As you likely know, liquidity providers can suffer Impermanent Loss when the price of one token in a 50/50 AMM pool is more volatile than the other.
But sometimes this loss isn't as temporary as the term implies, let's examine why...
As you likely know, liquidity providers can suffer Impermanent Loss when the price of one token in a 50/50 AMM pool is more volatile than the other.
But sometimes this loss isn't as temporary as the term implies, let's examine why...
2/ Say you provided liquidity $ETH / $USDC to a typical AMM pool this time last year when ETH was worth $243.
As the price rose, arbitrageurs bought and profited off your ETH, leaving you with USDC.
This loss is only impermanent if the price of ETH returns to the same level.
As the price rose, arbitrageurs bought and profited off your ETH, leaving you with USDC.
This loss is only impermanent if the price of ETH returns to the same level.
3/ For this reason, Integral argues it could be called "Pool Leak" instead of impermanent loss.
Integral further contends it's better to simply prevent the loss from happening in the first place.
But how do you mitigate impermanent losses from sure-profit trades? A Trade Delay.
Integral further contends it's better to simply prevent the loss from happening in the first place.
But how do you mitigate impermanent losses from sure-profit trades? A Trade Delay.
4/ By adding a 5 minute trade delay, Integral eliminates front-runners and arbitrageurs time-based advantage and makes those "sure-profit trades" not so sure anymore.
And by lowering the chance of profit for arbitrageurs, Integral increases the odds that liquidity pools profit.
And by lowering the chance of profit for arbitrageurs, Integral increases the odds that liquidity pools profit.
5/ I know what you're thinking: Won't the trade delay mean those traders will go somewhere else?
Yes, you're right. That's the point.
LPs want to make passive income with minimal risk.
So why would they want to provide liquidity to those who would cost them (impermanent loss)?
Yes, you're right. That's the point.
LPs want to make passive income with minimal risk.
So why would they want to provide liquidity to those who would cost them (impermanent loss)?
6/ Trade deferment can be a useful strategy for AMMs to protect liquidity providers from loss.
Integral is designed to achieve mean-zero impermanent loss (IL) for LPs and deferring trades that cause IL plays a large part in this.
Integral is designed to achieve mean-zero impermanent loss (IL) for LPs and deferring trades that cause IL plays a large part in this.
7/ Interestingly Integral's mean-zero IL design also means that IL can oscillate to become negative at times.
At which point it's actually more profitable to put an asset into the pool than holding it in your wallet.
In other words, LPs on Integral can have impermanent profits.
At which point it's actually more profitable to put an asset into the pool than holding it in your wallet.
In other words, LPs on Integral can have impermanent profits.
8/ Through a combination of concentrating liquidity to mirror depth and deferring detrimental trades, Integral aims to provide a better experience for both LPs and for traders who want less slippage on large trades.
Learn more about Integral defipulse.com/blog/integral/
Learn more about Integral defipulse.com/blog/integral/
9/ This is paid promotion as part of our DeFi Pulse Drops series where DeFi Pulse works with projects to launch their new features and builds. If you want us to work with you, please get in touch!
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