Impermanent Puns

Alright, I think many of us are excited to see SundaeSwap finally launching and giving us for the first time on Cardano the opportunity to provide liquidity on a DEX. The asset pairs available on launch day will include

• ADA/SUNDAE
• ADA/LQ
• ADA/WMT
• CARDS/ADA

(source: WEN SUNDAE? Thursday! - SundaeSwap)

I have seen quite a number of questions all over social media on why asset balances changed on the SundaeSwap testnet implementation and the answer in most cases was 'Impermanent loss'. So, before you start providing liquidity for these pairs, be sure to understand what you are doing, since the concept of 'impermanent loss' can be very confusing and will result in a change in the balance of the assets you provided. Be sure to check out some tutorials on e.g. YouTube to learn how variable asset prices will affect your contribution to the liquidity pool. Here are some videos that explain it quite nicely:

https://www.youtube.com/watch?v=8XJ1MSTEuU0

https://www.youtube.com/watch?v=_m6Mowq3Ptk

This one did the trick for me (it's in German, though):

https://www.youtube.com/watch?v=uvzEN67nMrE

Other than that, I wish everybody happy trading and yield farming starting next epoch!

EDIT: Added source of trading pair info

Impermanent loss in a liquidity pool is always discussed, as it should be, as the primary risk Liquidity providers face when entering a pool. Many newbies see the big APY and unstake or transfer or buy some atom and swap half for the other pair and get to liquidity mining. A few days later atom has gone up and they notice they have less Atom, WHAT HAS HAPPENED, WHERE IS MY ATOM?!? If this has happened to you then you did not do enough research to understand what you were investing in but let me share my rationale on why this doesn't matter.

The number one rule in crypto is what? Yes, do not invest more than you can afford to lose. IMO this is silly who wants to lose money no matter how much they have but I digress.

When you buy ATOM of OSMO or JUNO or whatever you buy an amount of coins. You then stake these coins for a certain APY with a validator and watch those rewards grow. You claim them periodically and they continue to grow. We see our coin count go from 10 to 12 to 15 etc. Assuming those coins stay the same price we are making money. YAY.

In a liquidity pool however when we provide that same 10 ATOM and its pair the coins are subject to IL. But who cares. Here is the mindset you should have with LPs

An investment of $500 into say Pool 605 HUAHUA/OSMO a gives external rewards and 76.46% for 14 days unbounding. My $500 can make this plus the external rewards with daily payout. Those daily payouts will add to my OSMO or whatever stack I want just like staking. The unbounding period is less than 21 days and the APR is higher than ATOM staking straight up (15%). Why do I not care about losing coins? Because I provided $500 not 15 atom. In fact Pool 605 of $500 about 5-6 days ago would now be worth over $600. Yes you have lost HUAHUA and gained OSMO but your $500 has increased by 20% and all rewards paid out. When you unbound you dont want the coins you want the USD value to choose a new pool.

This is the mindset every LPer should have and then IL wont phase them. Now if prices go down of course you lose money but not until you unbound and redeem your LP tokens. Its the same as not selling for a loss. You are stuck in that pool until you can break even or until you are willing to take the loss.

My advice: Do NOT redeem staked coins or coins you want as a part of your bag to LPs then you are at risk of IL. DO add new liquidity that is solely intended to be apart of LP.

I hope this helps anyone who is wary of LPs. If done properly you can increas

I see a lot of people hesitating on investing in the liquidity pool because they are afraid of impermanent loss. Obviously "loss" is not something any investor wants. But I think a lot of people are confused by what "impermanent loss" means, and many are more scared of it than they need to be.

If you have $1000, you can put it in the Akita-Algo liquidity pool by:

1. Buying $1000 of Algo (on an exchange).
2. Swapping half that Algo for Akita Inu ASA on Tinyman at https://app.tinyman.org/#/swap?asset_in=0&asset_out=384303832
3. Putting the $500 worth of Algo and $500 worth of Akita (equal values) into the Tinyman Akita-Algo liquidity pool at https://app.tinyman.org/#/pool/add-liquidity?asset_1=0&asset_2=384303832
4. Getting $1000 worth of LP tokens in return, which you can now stake on Yieldly for additional rewards, wuhoo!

The value of the LP tokens will increase as transaction fees accumulate, and change as the values of Akita and Algo change. So how do you figure out whether you came out ahead? Well, *it depends on what you compare it against*.

If you'd kept that $1000 in your bank then it would be worth just $1000, plus perhaps a pitiful amount of interest.

If you'd kept the $1000 worth of Algo you bought, the value would depend on what the price of Algo did.

If you'd kept the $500 worth of Akita, and $500 worth of Algo, the value would depend on what the prices of Akita and Algo did.

Or alternatively you could have spent $1000 on Akita instead and just held that. Then the value would depend only on what the Akita price had done.

Holding LP tokens is a different investment again. Holding LP tokens effectively means that your Algo/Akita mix stays at 50/50. It effectively rebalances automatically. Of course this works out differently to holding those initial values of Algo and Akita without rebalancing. Could be better, could be worse, but definitely different. If the Algo and Akita prices diverge significantly (e.g. if Akita moons but Algo doesn't), then simple buying and holding (without the rebalancing that a liquidity pool holding does automatically) may well have worked out better... And this is where impermanent loss comes in - it's what you get when that automatic rebalancing means you end up with less than you would have done if you'd just held initially-equal values

Browsing around the web I’ve found that all the free LP calculators are either

1. Online forms based therefore not very customizable
2. Focus too much on the impermanent loss of LPs without presenting the benefits

Hence, I decided to make a Google sheet that visualizes your LP profit against underlying token price changes, taking into account the trading fees and farming rewards. The sheet download link is at the bottom of this post.

Now let’s jump into a real world example, the CHR-BUSD pair on Pancakeswap(PCS). CHR (Chromia) is a relational blockchain used for L2 and many upcoming blockchain games, such as My Neighbour Alice and CHR has also announced an 80 MM USD grant program to further develop their ecosystem.

The CHR-BUSD LP pair on PCS has the following parameters

• 10% LP trading fees in the CHR-BUSD pair

• 40% LP farming rewards in the CHR-BUSD pair

Assuming we invest 1000 CHR which is worth $560 at the time of this post and 560 BUSD into the LP for 1 year, we input that into our sheet parameter as follows

https://preview.redd.it/4vxdbvadjo881.jpg?width=1016&format=pjpg&auto=webp&s=3ae6e8950527683899441e6fcc2eb50150892f0b

As CHR has a 25% staking reward if you stake the token, we use this value to set Token A staking APR and because the other pair is a stable coin (BUSD), for token B we use a starting price of $1 with 0% starting change and step. From coinmarketcap we know that the average yield for depositing stable coins is ~3%, hence we set that as our token B staking APR.

Using the above params, we simulate what would happen if we invested $0.56 x 1000 x 2 = ~$1120 worth of capital into the LP compared with staking the individual tokens over a set period, the sheet will then generate the following table values

Edited table screenshot to show the net pool value after lp fees and rewards

https://preview.redd.it/j81c1v8y7r881.jpg?width=1355&format=pjpg&auto=webp&s=cea8708feae45a938762c2a805d0b9891b651c7a

Along with the following chart

https://preview.redd.it/27swyftgjo881.png?width=873&format=png&auto=webp&s=8e7c46d34691baabe95fdb1f4756b211dca16887

The horizontal x axis being token A price change % and the y axis being the LP and staking token profit %

We see from the above chart how LPs outperforms holding single coins even when considering the coin staking rewards. At this point, you might be wondering where’s the impermanent loss people always talk about? To see the “impermanent l

I have some ETH sitting for some time. While waiting for $30k, I'd like to get some yield out of it. I dont want to get locked in Ethereum Staking as my target price may hit before release. Providing liquidity on UniSwap would also expose me to impermanent loss. I just want some DeFi protocol that would allow me to deposit ETH, earn reward in ETH and withdraw any time. Is there anything as such or am I asking too much?

Decentralized exchanges - or DEXs - are exchanges that live on a blockchain, with many of the most popular ones, such as Uniswap and Sushiswap, living on the Ethereum blockchain.

DEXs use smart contracts to allow users to exchange cryptos back and forth without the need for a centralized authority, such as a bank or broker, and they do not allow trading between fiat and cryptos.

How do they work?

Unlike centralized exchanges, which utilize buy and sell orders to determine the market price, DEXs use Automated Market Makers (AMM) to create prices.

Automated Market Makers use smart contracts and liquidity pools to set prices. If you’ve ever wondered (or heard) about how cryptos can have different prices on different exchanges and websites, this is why.

AMMs rely on users locking up some amount of their crypto into a digital wallet where it cannot be removed for some amount of time. These coins are then able to be exchanged by traders on the DEX for other cryptos.

Now, of course, nobody is locking up their coins for free, liquidity providers (LPs) earn interest on their coins based on how much they provide.

Automated Market Makers use the formula x * y = k, where k is a constant. If we add 50 tomatoes and 50 potatoes to create a liquidity pool, then k must always equal 2,500. The total value of the two must typically start off equal, so let’s say they both cost a buck. That means 1 tomato equals 1 potato and we have a 50/50 split.

Now, suppose someone wants to trade 10 potatoes for some tomatoes. You might think, “Oh, easy, one-for-one”. Well, not exactly. What happens is, I go to the AMM and give it my 10 potatoes and it recalculates the exchange. We now have 50 tomatoes and 60 potatoes in the pool, but that doesn’t equal 2,500.

So given that we have 60 potatoes that must multiply with our tomatoes for 2,500, we simply divide 2,500 by 60, which equals 41.667. Thus, my 10 potatoes were worth 8.333 tomatoes.

Liquidity Pools

When adding to a liquidity pool as a provider, one typically adds liquidity in the ratio that it is currently trading at. This prevents LPs from adding liquidity in a price-altering manner and means that you must add two kinds of cryptos when you provide liquidity.

Depending on how “exotic” the pair of cryptos are, the larger the fee incurred by traders to swap the coins, and the more is earned by the LPs. LPs earn based on the amount they provide, so if I make up 10% of a pool, then I’ll get 10% in fees every time the t

Is there a trick to mitigate impermanent loss? How should we approach this in a way where it can be profitable? I am genuinely interested in becoming a liquidity provider but I want to be profitable in it, can someone please guide us to become a good yield farmers?

Also is there any upcoming auto yield compounder (example Beefi Finance, Grim Finance, etc) under Cardano? Is there also an upcoming Cardano insurance for yield farmers?

I have researched how Impermanent Loss works and i think i understand how it works now, so I decided to give farming a go for the first time on Beefy and (after choosing the wrong token as it has lost a lot, whatever, lesson learned) i can't understand why i have less invested than when i started..

- LP = VVS/USDT
- IL = 11.46%
- gain = 49.96%

shouldn't i be positive?

or

shouldn't IL be higher?

Does anyone have any idea?

Also, Is impermanent loss during the hacking period being compensated, or is that only for those who had their pool tokens stolen?

I know there are hundreds of articles and videos out there, about liquidity pools or impermanent losses. However, I've noticed that many people, even those who are active in DeFi communities, still don't really understand the concept of impermanent losses. I've decided to try and explain it to anyone who's keen to understand it better.

Liquidity pool: it's a "pool" of two (or more) kinds of paired crypto-assets (cryptocurrencies, tokens), locked in a smart contract that allow users to trade ("swap") one asset for the other. The crypto-assets in the pool (the "liquidity") are provided by the liquidity providers.

Let's take an example that's not crypto-related: imagine creating a box with two compartments allowing people to swap USD for apples and vice versa. When you put an apple in the first compartment of the box, the second compartment automatically gives out USD. When you put USD in the 2nd compartment, the 1st compartment automatically gives out apples. Nobody controls the how the box works, except the smart contract.

Liquidity providers: individuals who provide the liquidity, as in, they provide the two paired assets in the pool.

In my exemple, the liquidity providers are the people filling the box, by putting both USD and apples in both of the compartments. If 1 apple currently costs $3, you can fill the box with 100 apples and 300 USD.

How is the price determined?: when you use an centralised exchange, the price is determined by the (centralised) order book provided by the exchange. Many people constantly input buy and sell orders, and the meeting of the supply and demand determines the market price. A liquidity pool doesn't have an order book : the price is exclusively determined by the smart contract (also called "Automated Market-Maker", AMM). To provide users with a price, the AMM simply looks at how many of each assets are in the pool. Then it applies the following formula : X * Y = K.

> [number of token] X * [number of token]Y = K [ratio].

It's important to know that the smart contract will make it so that the ratio [K] is always constant, and never changes!

In my exemple, imagine that an apple costs, on the market, 3$. At the beginning, the box will contain 100 apples and 300 USD. Your ratio is then 100 [apples] * 300 [usd] = 30'000 [K, the ratio]

*Then, someone decides to buy one apple from the box, by putting USD in the box. The AMM knows that after the transaction, there will only be 99

First off I just want to say that impermanent loss is a type of opportunity cost. It is not an actual decrease in the value of your assets, only a measure of how much money you could have made by choosing to hold your crypto instead of putting it in a liquidity pool.

Why is everyone so worried about impermanent loss? It is a purely fictional concept. You can only look back at the price charts and say "damn I could have made more money." Yet so many people are trying to give advice to avoid it like the plague. I see people say something like "watch out for impermanent loss" way too fucking often. No one would give the same advice seriously in any other context. That is like saying "don't hold ETH because you can make more money if you hold DOGE and go to the mooon 🚀🚀"

It's such bad advice to tell people to take on more risk because they MIGHT have less profits. And no one ever mentions that for every LP pair there is a winner and a loser. If you choose to hold coin A but coin B is the one that goes up, then you were better off in the LP. Impermanent loss makes your profits AND your loss smaller. It's a good thing for people who actually want to make sure they don't lose their money.

And finally this whole thing is a casino, so stop acting like you know what is going to happen. You can know perfectly well what happened in retrospect, but we make our decisions with imperfect knowledge of the present. Impermanent loss is something that only shows up when you look back, it only exists in retrospect. Don't use it to inform your decisions in the future when you risk losing so much more by avoiding it.

It is good to hedge your bets, and just because you stand to gain more from holding doesn't mean it is the better option. Security has a value of its own.

[Edit] I was wrong when I made this post. Impermanent loss is real and actually results in value leaving the pool, and by extension your stake in that pool. I was right in how I thinking about a coin going up, but not when a coin goes down. IL will make your losses bigger and your gains smaller.

I didn't realize that arbitrage trading when the price is decreasing would remove value from the pool, I just didn't think about where their profits were coming from tbh.

So I have a basic knowledge of impermanent loss and how pools work, and that's if half of the bonded pair has a price fluctuation, that can result in impermanent loss to even out the values of the pair. So, seeing as UST is a stablecoin and doesn't move in price while OSMO is your normal fluctuating token, doesn't that mean you're GUARANTEED impermanent loss if you join this pool? I understand it doesn't matter what pool you're in, there'll be some loss, but wouldn't having a pool with a stablecoin be the riskiest combination you could put your money into?

I'm just asking because I see that APR and holy hell is it tempting, but man, having a stablecoin in the pair kinda puts a red light on me putting my money into it.

I started investing in crypto about 9 months ago. I have slowly started to explore further into the DeFi world and have begun researching impermanent loss. I want to see if I have this topic somewhat right and want to run an example by people.

Lets say I start with liquidity pool for Coin A and Coin B. I put in Coin A (quantity 15) and Coin B (quantity 5). So we're starting at a 15:5 ratio. Lets say Coin A price decreases during a bear market at a greater rate than Coin B. So would the ratio increase in its favor? If I were to withdraw would the ratio now be Coin A >15 and Coin B< 5?

Also if this were to be true, is it really a loss? Couldn't I simply pull it out of the pool and then convert Coin A excess back to Coin B to re-establish the original ratio I entered it with? Any drawbacks to this other than conversion fees? Input is greatly appreciated.

Hello everyone. I have some BnB/Cake staked in the LP pool and I'd like to know how to see the impermanent loss without having to use one of them websites that require you to connect your wallet. Is there a way that you can see it directly in Pancakeswap? Any help would be appreciated, thanks in advance.

I mean, you add AKITA and ALGO pair. If people buy a bunch of AKITA, you get ALGO. If people sell, you get AKITA. And, as it appears with the 90,000,000 transfer of AKITA to the Yieldly wallet last night, AKITA transactions are going to start flying, so you will get a lot of one or the other. Am I not thinking about this correctly?

Here are some pin points from the latest blog on enter.blog

This blog is ALL about understanding Impermanent Loss

https://www.enter.blog/@enter/understanding-impermanent-loss

Understanding Impermanent Loss

If you want to make profits from exploring DeFi, understanding impermanent loss is vital. We’ve summed up the fundamentals from what impermanent loss actually is, how to avoid it, and how the NFTART token has an interesting dynamic in farming due to the tokenomics.

• What Is Impermanent Loss, Exactly?
• How Does Impermanent Loss Occur?
• How Do I Avoid Impermanent Loss?
  • 1. Liquidity Mining Programs
  • 2. Stay Away from Volatile Liquidity Pools
  • 3. Go for Staking Pools That Are One-sided
  • 4. Go For Liquidity Pools That Have Same-pegged Assets
  • 5. Utilize DeFi Dashboards to Monitor and Track Impermanent Loss
• NFTART Is a Great Option to Mitigate the Cost of Impermanent Loss
• In Conclusion...

Visit and read the blog to see all the info on Impermanent Loss

Hey team.

Bit of a noob here so apology in advance for what may sound like a silly question but is there anyway to see your transaction history from the DEX? I added some OSMO/JUNO to a LP pool and want to check the amount I originally deposited so I can determine any impermanent Loss from a IL Calculator before unbonding.

Also if I provided liqudity on these assets two months ago, does impermanent loss only come into effect if one or both of these assets go below the original amount of when I first entered the pool. FOr example, OSMO was around 5 dollars and Juno was around 10 dollars and now they have both nearly doubled. If one or both dump but don't dump below the original amount of when I started pooling does that mean I'm still in profit?

Sorry if this has already been asked.

How does impermanent loss work in a COIN / STABLECOIN pool? ETH / USDC for example

One assets (hopefully) keeps its value at 1$ while the other increase or decrease.

Thanks to anyone who will help

Are there any good ones for yield farming/liquidity pools. All the IL calculators I can find do not let you input APY so the numbers don’t really mean much.

‪There are 2 very good Impermanent Loss calculators below. No signup or login required. Very straight forward and easy to use. ‬

‪Calculator 1 is for calculating impermanent loss and nett profit of a single fund added in a 50%-50% weighted liquidity pool.

‪ ‬ https://upoint.info/calculator/checknow

‪Calculator 2 is for calculating impermanent loss and nett profit of multiple funds added in the SAME 50%-50% weighted liquidity pool.

For example, you have added three funds to the SAME pool:

Jan 2021: 10 Token A + 70 Token B

Apr 2021: 15 Token A + 100 Token B

Jul 2021: 5 Token A + 30 Token B

‬ https://upoint.info/calculator/checknow2

There are few great posts that explain impermanent loss. However I can't help but feel like I still don't quite understand the peril of impermanent loss if the goal is to accumulate and hold onto the tokens.

For simplicity, what if an ASA token is purchased for $1 in 2021 and then that same token, now available to sell on an exchange, is worth $2 in 2026? Impermanent loss may have occurred from your swapped token but you still made a profit.

Am I thinking about this incorrectly?

I'm starting to think about this today after having used yield optimisers for quite a while. Since the yield optimisers help us to compound the rewards automatically, does it also amplify the magnitude of our impermanent loss?

Usually, the liquidity mining rewards should at least help to cover the impermanent loss by a little. But now that we are buying back using our rewards as the market continues sliding in whatever direction it’s in, don't we have nothing else to cover any large impermanent losses especially in the last few days when the market fluctuated by quite a bit?

I'm just trying to get my head around this because I'm having quite a bit of dilemma on how I should think about this. On one hand, I could see the potential of compounding the LPs and get more from the APY. On the other hand, I'm also looking at the rewards as a way to cover my losses especially for those with extremely high yield.

Without the rewards, it's almost certain that the impermanent loss will eat into us when the market fluctuates unless we are lucky to always to get out when the price goes back to where we entered. Yet, if we put all of our rewards back into the pool, aren't we amplifying the magnitude of the impermanent loss?

I have seen that it is not yet clear to some here.

Source: https://t.me/tinymanofficial/30521

I think I finally get when it makes sense to take on the risk of impermanent loss. I'm thinking of it like an auto rebalancing bot that keeps a 50/50 diversified position between a pair. This would be desirable even if you could not earn yield/fees, if you were going for a continually equal diversification between that pair. Am I understanding that correctly?

On that basis, I will probably provide some ADA/ERG liquidity when that becomes available on ErgoDex. For me it would be a way of diversifying between them while also earning fees. If I didn't want to diversify, the risk of impermanent loss would not be worth the reward, but since the liquidity trading pair is between two coins I want to own anyways, it seems to make sense. I would not put all my ERG into that as I don't want a 50/50 split between all my ERG and all my ADA. It's more like, as I buy ADA, I will actually buy some more ERG and some ADA as a way of diversifying between them and earning fess. Does that make sense?

Perhaps another good term for "impermanent loss" would be "the rebalancing effect". It doesn't always have to be perceived as a "loss" even when in the moment it kind of works out that way. That "loss" might be an intentional part of strategy. You might think that whenever A goes up, its better to move some into B that stayed the same or went down. Asset B is now more appealing to invest in because it hasn't pumped as much, or has maybe gone down. Investors call this "taking profits". Liquidity yield seekers call this "impermanent loss". Or am I still misunderstanding something?

The idea that "impermanent loss" can be the same thing as "taking profits" is easier to wrap your head around if you think about the liquidity pair ERG / SigUSD. If you were taking profits when the price of ERG goes up, you might sell some ERG for stablecoins. You might then wait for ERG to go down before trading some of those stablecoins for ERG. This is basically what being a liquidity provider with that pair does for you automatically.

UPDATE

I found these that are explaining the same thing I just said, but in different ways that shed more light on it.

https://ergonaut.space/en/Guides/yield#impermanent-loss-volitality-harvestinghttps://research.paradigm.xyz/uniswaps-alchemy

What's everyone doing to capture impermanent loss from LPs? Doesn't appear to be a great option in Koinly. Thanks!

Hello,

I hope someone can help me. I don't understand impermanent loss (like many people). I'm currently liquidity farming on vexchange providing VET/VEX. Is there a way I can actually check how much I currently have of each VET VEX token, and therefore see if I have less of each token than what I originally put in?

I'm looking for a way to check this WITHOUT SUFFERING IMPERMANENT LOSS. And I can't see how many of each I have currently staking anywhere on the vexchange platform.

Any help is appreciated!

Thank you

Hi guys, i’ve been thinking a lot about whether or not to stake my sand that I earned from the alpha. If I were to stake it, I would want to go all in, which would require a significant investment in MATIC as well.

My question is: with the volatility of these two coins and their lack of correlation to each other, isn’t the risk of impermanent loss extremely high? I’m confused because I see people have already staked $100mil+ of these tokens in the Sandbox pool. So far, I haven’t seen anybody complaining about their experience with staking. I’m just wondering if the reward is worth the risk. Fundamentally, it seems quite risky to me, but maybe that’s because there’s something I’m not understanding correctly. Please, weigh in on this with any info/experience you have. Thanks

Is there a way to show historical impermanent loss or something as a chart?

First off, Happy New Years to anyone celebrating!

Recently, the Osmosis Governance approved another set of external incentive matching for the BTSG pools (disclaimer I am a BTSG Validator). I wanted to analyze at how these pools perform if you ignore incentives. Simply Swap Fees Accrued vs Impermanent Loss. When you put tokens in a pool, you're no investing in the GAMM itself. When people use the pool, the swap fees go to the GAMM holders, which increase the tokens represented by the GAMMs.

With impermanent loss, you end up holding more of the token that underperforms in a pool, but does that mean you have less money than if you had just held both tokens?

Not necessarily! In this example, if you had invested in the BTSG/OSMO pool (https://app.osmosis.zone/pool/573) on October 31st (Block 1,800,000 in the charts), your GAMMS would actually gained in value by 3.45% as of January 1st (Block 2,620,000 in the charts).

So the GAMM's performance: ($0.000000821-$0.000000794)/$0.000000794 ~ 3.45%

And the impermanent loss would be calculated as:

<Amount of uBTSG at Start> * <Current uBTSG Price> + <Amount of uOsmo at Price> * <Current uOsmo Price> - <Current GAMM Value>

Which comes out to:

(0.822 * $0.420/1000000 + 0.0735 * $6.46/1000000 - $0.000000821)/ $0.00000082 ~ -0.12%

The division by a million is to convert BTSG/OSMO price to uBTSG/uOsmo price. Note that the % loss is negative. This means that we don't have any losses, and instead actually have an 'impermanent gain'. Though in this case its a relatively small amount.

Again note that this doesn't include external/internal incentives and the compounding of those incentives. The reason for this is because the incentives are temporary and I wanted to compare the ROI of a pool to just holding the tokens. Hopefully super fluid staking will come out and I can run these numbers again but assume the Osmo portion is being staked and compare that to just staking the individual tokens by themselves.

Let me know if you need clarification on anything. I had a long New Years Eve and may of written this while a bit sleep deprived.

Edits: Learning how to make a table on Reddit

[Number of uBTSG in a GAMM-573](https://preview.redd.it/wisv8w0sf5981.png?width=754&format

This was one of the things I had the most trouble understanding as an early crypto enthusiast because I thought I understood it but I didn't really. So let me attempt to explain it in the easiest possible way.

Let's say you are providing liquidity for ETH/BNB pairing.

You have 3 options,

Add ETH only to the liquidity pool

Add BNB only.

Add both ETH and BNB

For simplicity lets assume 1 ETH ($4000) = 10 BNB ($400 *10)

NOW, you add 1 ETH to the pool.

Half of it will be automatically converted to BNB at the time of transaction.

So you will have 0.5 ETH and 5 BNB in the pool, at the start of the contract/transaction.

Now, lets say ETH L2 is announced and ETH goes up 2x to $8000 each. Meanwhile, BNB has not moved as much, and is still at the original price of $400.

Ok, so this is the important part. If you had just held your 1 ETH which has gone from $4000 to $8000, your gain would have been $4000.

However, since your 1ETH got converted half to BNB at the start, to provide a 50/50 ratio, without any further balancing (coming later), you had 0.5 ETH (currently worth 8000 x 0.5 = $4000) and 5 BNB (currently worth 400 x5 = $2000)

So, if you had held on to your original 1 ETH it would be worth $8000, but now you only have 0.5 ETH and 5 BNB totalling $6000.

To further complicate things, any liquidity pool tries to maintain a 50/50 ratio. So, instead of getting back 0.5 ETH and 5 BNB, that we had originally put in, the pool will have rebalanced to something like 0.375 ETH ($3,000) and 7.5 BNB ($3000) to keep things at a 50/50 ratio.

So, when you redeem your tokens, you will get back 0.375 ETH and 7.5 BNB. After putting in $4000 you are getting back $6000, since ETH went up in value. But if you had held onto your 1 ETH and did nothing you would have $8000.

Now, the question is, why would anyone add liquidity? The simple answer is you get a certain APY%, so if ETH had not 2x'd in value, or if ETH and BNB had both 2x'd, you would have made 20% or 30% APY for providing liquidity.

Having a wrinkle brain moment here. Isn't it this what Citadel is trying to avoid? They're a market maker and providing liquidity to the GME-USD pair.

Now GME value has risen too much for their calculated risk so if they were to pull their funds out they end up with a different ratio than they set out with and not in their favor any more.

That's why they are constantly spreading FUD. And shorting might be a secondary problem compared to the impermanent loss that they are facing.

Am I onto something here?

Edit: It makes even more sense now that I think of it. Synthethic shares are created when shorting. Those synthethic shares are used for the market making / liquidity. When GME sneezed and gained value 5x on average they will come out of the liquidity with much fewer GME shares which... they will have to now buy back! EOY might prove very interesting when they will have to balance their books for 2021.

I would appreciate any help:)

Would someone explain to me in detail how impermanent loss works? I don't understand it well and I don't know how I could be losing right now or a possibility in the future. ty :)

I didn't do yield farming before, so want to know there isn't any impermanent loss