⚖️ Impermanent Loss
Learn what impermanent loss is and how you can avoid it on Planet Finance

What is impermanent loss?

Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
Here's examples at different price changes showing how impermanent loss can effect your holdings vs. if had you just held the assets outside of the liquidity pool:
    1.25x price change = 0.6% loss
    1.50x price change = 2.0% loss
    1.75x price change = 3.8% loss
    2x price change = 5.7% loss
    3x price change = 13.4% loss
    4x price change = 20.0% loss
    5x price change = 25.5% loss
Pools that contain assets that remain in a relatively small price range will be less exposed to impermanent loss. Stable coins for example, will stay in a relatively contained price range. In this case, there’s a smaller risk of impermanent loss for liquidity providers (LPs).
To learn more about impermanent loss from Binance go here.

How can impermanent loss be avoided on Planet Finance?

Stable coins are designed to be stable and hold their value at $1. Within liquidity pools containing a stable coin on both sides (BUSD-USDC for example), neither assets price should fluctuate significantly. In rare cases when they do, the market is incentivized to quickly bring the price back to $1.
Therefore providing liquidity in dual stable coin pools allows you to have stability on both assets you've put into the pool as well as reap the benefits of earning transaction fees when others trade the tokens you've put into the pool.

Where there can be impermanent loss on Planet Finance

For those providing liquidity in the AQUA-BNB LP or any non-stable coin LP's, impermanent loss is a factor worth considering. Both $AQUA and $BNB have prices that fluctuate. Extra $AQUA is allocated to this pool and you also earn trade fees that happen in this liquidity pool. The $AQUA you earn as well as trade fees received are designed to help offset any impermanent loss one might face while trying to provide liquidity.
Last modified 6mo ago