Impermanent loss threatens the promise of AMMs as a mechanism for democratizing liquidity provision and enabling passive market-making by any user with latent capital. Basically, a person who wants to do liquidity mining “lends” liquidity to a certain pool (Uniswap). Every investor deserves an instrument to calculate possible losses/incomes before providing liquidity. The Advanced Impermanent Loss calculator is a tool designed specifically for this purpose: it allows you to figure out potential losses or incomes you may experience when providing liquidity as a result of volatility in a trading pair.
Liquidity provided by service users
To make a long story short, AMM brings the possibility to exchange digital assets like DAI for ETH without the need to interact with centralized service providers. AMMs operability is completely user-driven and relies on liquidity mass provided by service users. As a live example, ETH for DAI swap on Uniswap is a direct trade of assets against the liquidity pool.
Impermanent loss usually occurs in standard liquidity pools where the liquidity provider obligated to keep both assets in a correct ratio but the price of tokens volatile and diverge in one or another direction where higher difference means greater impermanent loss. (video)
Impermanent loss is a direct threat to the popularization of AMM principles and decentralized markets of passive income for anyone with idle assets. However, recently discovered strategies of risk-minimization turn automatic market makers into an efficient solution for maintaining liquidity decentralization.
The market is full of utilities for calculating potential impermanent losses, but most of them are useless for real-life calculations. In this regard, the defiyield.info team has developed a unique free-to-use IL calculator.
DeriSwap, which Andre is developing, will probably be used to prevent IL. Howso? The yield gained will be used to counteract the cost of purchasing a put option. This is genius.
Yield is the cost of purchasing a put option. With greater yields, the more protection against any IL. With greater IL protection, the greater the yields...
This incentivizes people who want to have IL protection to use yearns vaults/strategies. The greater the yield bearing strategy, the lower the IL cost. This also incentivizes strategists to create high yield bearing strategies. This is because strategists get a direct fee from people that use their strategies for their farming. If their strategy produces the highest yield, their strategy also produces the lowest impermanent loss. andrecronje.medium.com/deriswap Deriswap allows for a consolidated, capital efficient market for trading, Options, Futures, and Loans, allowing LPs to keep their exposure and enjoy additional fees and rewards.
So you might want to explore Yield Farming, the possibility of receiving “free” tokens by providing liquidity to a pool? So what is Yield Farming and how does it use Liquidity Mining?
In the world of decentralized finance, "Farming" is a way to earn interest on your assets through various platforms, which specialize in lending (@aaveaave), profit-earning strategies (@iearnfinance), or aggregators (@DraculaProtocol).
The risk varies depending on the platform, but generally speaking the higher the return (APR), the greater the risk. It is possible that you’ll lose all of your funds if you deposit your assets to a malicious or vulnerable platform, so do your own research before depositing.
It doesn’t make sense to Yield Farm with less than $1,000 worth of assets. Transaction fees for interacting with platforms on the $ETH blockchain, known as gas prices, will cost more than what you’ll earn. Monitor gas price ethgasstation
Those are the basics, next I’m going to give an example of how to start farming. Remember, don’t put in more than you can afford to lose. Although crypto can be extremely profitable, it is still relatively new and the risks are much higher than traditional finance.
Before long, the APYs promised by many of these platforms skyrocketed and finding the highest return for a single person was next to impossible. Hence projects such as yearn.finance, i.e. platforms for the automatic management of funds through the choice of risk to be used for Yield Farming.
To start, you’ll need a crypto wallet. I recommend https://metamask.io, as you can purchase $ETH through it. Save the 12-word seed phrase and keep it secret. You can send any $ETH you have to your new wallet address
I look for the best current Yield Farms through @Coingecko, here: coingecko.com/yield-farming. Most of the platforms listed are battle-tested and relatively safe, with audit information for each farm. I look for farms that allow $BTC, $ETH or $LINK to be used as the base asset
In this example, I'll choose the SushiSwap $LINK / $ETH pool. Select the link underneath the ‘Pool’ column. Once on SushiSwap, deposit $LINK and $ETH in an even ratio to become a liquidity provider (LP). Depositing will cost gas (in $ETH) and it may take several minutes.
You'll get an LP token that represents your share, which must be ‘staked’ in order to earn rewards in $SUSHI. Staking is another transaction and will cost you $ETH. To claim your $SUSHI rewards, you will have to ‘harvest’ them every so often, which can be expensive. The solution? Stake your LP token through @DraculaProtocol and the rewards will be harvested automatically at no cost. In order to stake through them, you can’t already be staked on SushiSwap.
You should be staked through a farm of your choice and earning yields! But how do you know how much you’ve made? I track my earnings through @zapper_fi or
@DeBankDeFi, depending on the pool. Both are great tools for portfolio value and pending yields. A protocol that allows Bitcoin holders to effectively utilize $BTC to farm yields? Check $BADGER as they can interface with the hundreds of billions in $BTC. A new bluechip emerging that is only~1 month old yet is commanding a top 10 TVL spot. Incredibly impressive!
Nomi served some rotten sushi, but Maki and team have done a great job turning things around. Space for both $UNI & $SUSHI in a 60 trillion mc ecosystem
The benefits of risk-minimized liquidity provision and single-token exposure turn AMMs into a far more robust and efficient solution for driving decentralized liquidity. The @Chainlink pool is one of the largest pools on Bancor and has some of the highest APY. LPs can stake single-sided & earn $BNT rewards + swap fees w/ protection from IL. The APY on the $LINK side is currently 37%.
It has been remarkable to see DeFi explode by handing over control to the users who deposit assets in the system. The results are simply incredible.