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30155465 No.30155465 [Reply] [Original]

I understand impermanent loss but what happens if you're adding liquidity and the price rises?

>> No.30155575

>>30155465
Also are liquidity apy's inflated because you need to stake 2 tokens in equal amounts usually?

So I stake 100 DAI and 100 COIN but I only get 10% apy on 100 DAI-COIN LP?

>> No.30157017

>>30155465

Price of what rises? Both tokens equally? Nothing. One token more than the other? That token will be sold to buy the other. You'll end up with more of the cheaper token.

>> No.30157315

>>30157017
Makes sense, thanks anon.

>> No.30158820

>>30155465
be careful how you think of price, impermanent loss occurs when the ratio of the two tokens in the pool changes, and is unrelated to the actual price of the two in relation to anything outside the pair.

e.g. if you're in the eth/uni pool, impermanent loss happens when the ratio of eth:uni changes, but is completely unaffected by the usd price or anything else. If they both rise and fall at the same rate in terms of USD or any other currency not in the pool, no impermanent loss occurs.

>> No.30159409

>>30158820
Ok but what if one of the coins you stake is a stablecoin?

So usdt/eth and eth goes up 10%. I lose money if my yield is under 10%?

>> No.30159815

>>30155465
.... you lose token and gain money.

>> No.30160056

>>30159409
yes because the ratio of usdt/eth changes
the other thing to keep in mind is that impermanent loss is a comparison to just holding the assets outside the pool.

E.g. you have 1 eth and 2000 usdt and the eth price is 2000 usdt, for a total value of 4000 usd

if eth goes up in price to 2200 usd, your share of the pool would become something like 0.95 eth and 2090 usdt (my math is spitballing), for a total value of 4180 usd

but if you had just held 1 eth and 2000 usdt instead of putting it in the pool, your value would be 4200 usd now

the difference between the two (4180 vs 4200, $20 difference) is your impernanent loss

it's called impernanent because if eth goes back to 2000 usd, then your share of the pool would be 1 eth and 2000 usdt, back where you started, but you would have also earned fees on top (your permanent gain).