Impermanent Loss Of Liquidity Pool

in Project HOPE2 months ago

Cake Defi has introduced its liquidity pool with attractive interest rates.

I had only tried staking my tokens for rewards in the past and providing pairing tokens into liquidity pool was a new experience for me.

I thought that it was like the way how I earn from staking but I was really wrong.


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In most liquidity pools, the pairing tokens would have equal values when we first provide liquidity into the pool.

We can start earning rewards that can be as high as 300% APY for quite a number of liquidity pool.

After becoming a Liquidity Pool provider, I realised that the number of tokens that I had provided could change due to the price change of tokens leading to imbalance of my pairing tokens.

When this happens, the number of tokens may be readjusted. The greater the change of price, the more loss may occur.

Arbitrary would enter to buy the cheaper tokens to achieve a balance.

The high profit comes with a higher risk then.

Another possible fact may be the rewards that we obtained may be able to help us to offset the tokens lost in the pool that result in us still earning a profit.

Experiential learning is an effective way to understand abstract concepts.

I would never have understood what is impermanent loss about until I tried it myself with a lot more factors that I did not mention in this post.

Cake Defi is still a great place to earn in staking and liquidity mining since it is a reliable company that is registered in Singapore.

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Did you lose something till now? How did you act? Did you manage to add more to achieve the balance and avoid loses?

Would be interesting to see a real case. Thanks

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I invested in the USDT-DFI pair for liquidity mining. The price of DFI has been rising affected the balance. My USDT had increased while my DFI had reduced. When I calculated, I would have earned more if I held on to my DFI based on the price increase in the market actually. I decided to take out half of my liquidity. I invested the DFI into staking on Cake Defi for the liquidity that I pulled out to earn a constant reward of 37%. When I get my reward mainly in DFI from the liquidity pool daily, I would put the DFI reward into the staking pool so I hope it does balance the loss. The DFI in the USDT-DFI pair is the one that is reducing greatly due to its price improvement. In term of total value, I did not really lose. The impermanent loss for my case is the lost of possible profit if I held on to my DFI and sold it without putting my DFI into the pool. Nevertheless, the reward from the liquidity pool may help to offset the impermanent loss if I keep my investment in the pool for a longer period and the APY does not change drastically.

Thanks for the explanation. It is making more sense.

I wanted to stake some DEC on unsiwap, but gave it up in the end as it was to complicated.

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