Impermanent Loss Explanation


These docs are provided by the community please use at your own risk


When you enter any LP you have to stack two assets to enter, let’s call one assets πŸ’Ž and the other πŸš€

To describe this in another way: πŸ’Ž βš–οΈ πŸš€

One of side of the scale is your πŸ’Ž's on the other side of the scale is your πŸš€'s.

The ratio of πŸ’Ž to πŸš€ gets set at the time of entry into the LP. So let’s say you want enter the LP with 2 diamonds and 2 diamonds worth of rocket ships (10 rocket ships).

As the coin goes up your πŸš€ inside the pool get sold for πŸ’Ž. As the coin goes down your πŸ’Ž's are exchanged for πŸš€'s inside the LP automatically and without your control

Impermanent Loss comes in when the coin pumps to Valhalla and then you end up with no πŸš€'s left and only πŸ’Ž's.


Essentially you have suffered impermanent loss on your rocket ships as you can never buy as many back as you had because the price has pumped.


Ok so now that we have an brief understanding of IL what can we do about it?

  1. Prepare for it and accept it by choosing the right pairs

One strategy for dealing with IL is to simply accept it and to pair your desired asset with a stablecoin base pair. For this example we assume you really want to APE into 0 Exchange token cause you know it's going to moon but you also want some of that sweet APY from their LP's as well. In this case we would chose to enter the Zero/USDC, Zero/USDT, Zero/BUSD, or Zero/Dai pools as our LP of choice. The key is the only enter the LP with an amount of USDC you are willing to turn into Zero and an amount of Zero you are willing to part with completely. If you do this then you can essentially let the LP do your buying (when it dumps) and selling (when it pumps) and then outside of the LP you hold your moonbag of Zero for when it pumps to Valhalla.

  1. Whine about it on Telegram

This strategy is pretty straight forward you just ignore all the documentation and just go to telegram and bitch about it!

  1. Use it as a buying/selling mechanism

When you are inside the LP (Zero/USDC) you have to visualize your tokens as being on that LP scale. One side of the scale is the token (Zero) on the other side is the base asset (USDC) of the LP. When the Token pumps (Zero) you will be selling it (Zero) inside the LP for the base asset pair (USDC). When the FUD starts coming in hot and the token (Zero) starts dumping then inside the LP you will be buying the token (Zero) off all the sellers with your base asset (USDC). So this is going on as the markets go up and down and then eventually along comes Mr. Bull Whale. He is a whale of all whales and he unbutton's his sleeves, rolls them up, and then with slippage at 50% buys all the liquidity inside the LP. Everyone inside the LP has now lost all of their tokens (Zero) and all that is remaining is their base token (usdc). For some this is IL for others this is just a well executed sell strategy.


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