In legacy AMMs, LPs profits when there’s correlation between paired assets (ie the token & ETH)
As a protocol, is this the type of LP you want supporting your liquidity? One who’s betting the asset won’t outperform ETH and is therefore more likely to dump earned tokens into ETH?
Jan 14, 2022 • 19 tweets • 5 min read
1/ What “DeFi 2.0” gets wrong: it tries to offer a better solution to liquidity mining
But liquidity mining isn’t the problem
The underlying design of AMMs is
A 🧵
2/ In 2021, DeFi continued to attract large numbers of users seeking access to decentralized trading & yield strategies
Part of DeFi’s appeals is users can gain exposure to protocols in their infancy, before a protocol gains widespread adoption and its token is listed on a CEX
Nov 6, 2021 • 9 tweets • 2 min read
Totally unbiased opinion: There is still no better liquidity solution for an established token project than a @Bancor pool
⁃ stake only your token
- no forced exposure to another token
⁃ earn more of your tokens
⁃ full protection from impermanent loss
All powered by a single protocol - no optimizers or second-layer protocols that add security risk and cut into your yields
Even if you combined multiple protocols, including “DeFi 2.0” protocols, are there any liquidity solutions that offer such a safe & simple UX for LPs?
Jun 20, 2021 • 4 tweets • 2 min read
Let’s get a fews things straight:
Eliminating impermanent loss is impossible.
Bancor has never eliminated IL risk.
However, it is possible to TRANSFER IL risk.
Bancor transfers IL risk from LPs to $BNT holders, who earn rewards for managing IL risk.
When protocol fees > IL compensation, $BNT holders profit
The key role of the #BancorDAO is to manage IL risk & earn fees by:
- whitelisting tokens that earn more fees over time than IL
- seeding performant pools w/ BNT co-investments
- deploying LP incentives (BNT rewards)
Apr 10, 2021 • 23 tweets • 6 min read
Let’s not get lost in semantics on Impermanent Loss
I'm now seeing the following on crypto twitter: “AMM protocols trying to solve IL are a waste of time, YOU CAN’T SOLVE IL!”
Discussions on IL & methods to address it are confused by vague terms like “solved” & “mitigated”
👇
Impermanent loss indeed cannot be solved. Full stop. We’ve known that for a while
Just as insurance cos don’t prevent houses from burning down, neither does Bancor prevent IL from occurring
But is StateFarm wasting its time because its services do nothing to fire-proof houses?
Jan 21, 2021 • 4 tweets • 1 min read
Single-sided liquidity pools change the game for liquidity mining rewards programs, since they introduce novel re-staking functionality.
Broke: Dual-sided pools where an LP earns mining rewards, but can re-stake them to the protocol only by selling some of the tokens or pairing them with additional capital.
Jan 17, 2021 • 5 tweets • 3 min read
Anyone who tells you impermanent loss is no big deal because swap fees make up for it, show them this graph.
LP returns in the $YFI/ETH pool on Uniswap.
After accounting for swap fees, an LP would have suffered -40% loss vs +30% gains without IL.
Meanwhile, check out APY for the $YFI pool on uniswap.info.
Supposedly it's +29.62%
Only off by -70% 🙄
LPs are led to believe they're earning high APY, when in reality, they could be suffering heavy net losses vs. holding.
Nov 1, 2020 • 9 tweets • 3 min read
1/ Let's talk about APY in AMM pools 📈
It's the main metric used to calculate profits, with many yield farms & AMM protocols advertising high APY figures to lure LPs 🤑
But the way APY is measured today makes some flawed assumptions that can be misleading 🧐👇 2/ One flawed assumption is liquidity staked in a pool remains intact.
In reality, impermanent loss erodes staked liquidity and reduces profits from collected swap fees & liquidity mining rewards.
This can leave LPs with razor thin or negative returns.
