Understanding IL
3 things you need to know about Impermanent Loss
When you swap tokens on an AMM, you trade with a liquidity pool
LP tokens make up these liquidity pools, which any user can create
LP tokens are created by pairing equal amounts (in USD) of two tokens, and smart contracts balance the price of that LP token
IL occurs when an LP token's value differs from the value of the same token outside of the pool
An LP's value continually changes based on volume and you can accrue a loss when unpairing
If 90% of users are selling HBAR, an HBAR - USDC LP will weigh heavily toward USDC
DEXs can charge a swap fee to combat IL, Pangolin charges 0.3% that goes directly to LPs:
w/ enough volume on a pair, LPs can accumulate fees to counteract IL - also LP can be farmed for extra rewards
โ Liquidity is the foundation of PangolinDEX
Last updated
