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24098428 No.24098428 [Reply] [Original]

Can someone explain impermanent loss to me in 30iq terms? It's not sinking in at all. Why shouldn't I LP any tokens I hold? Especially if there is extra incentive like PRQ and PRQBoost?

>> No.24098474

Youll lose money if the ratio of the prices diverge

>> No.24098541

Money go woosh. Big sad.

>> No.24098558

>>24098474
This is what is putting a hole in my brain. The ratio of what (prices)? Prices of what?

>> No.24098594

>>24098474
>diverge
that's not a 30iq explanation, let me try.

>>24098428
If you provide an apple and a banana as liquidity, someone will take a bite out of your apple, while giving you a piece of a banana in exchange. You risk somebody taking large bites out of your apple, giving you lots of bananas in exchange, only to discover that you are allergic to them.

>> No.24098626
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24098626

>>24098594
Kek didn't help but I laughed thank you

>> No.24098645

>>24098558
This is my understanding im not an expert:
Example, you provide eth and prq, both starting at $500
You will not lose money upon: both staying at $500, both going to $600, both going to $400. In fact you'd collect trading fees
You will lose money on: eth going to $600 and prq going to $400, or vice versa

>> No.24098684
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24098684

>>24098645
That wired it up correctly in my brain, thanks anon

>> No.24099036

>>24098645

So I get the concept, but in this market prices are always fluctuating wildly. So basically, your staking gains must outpace the ratio losses?

>> No.24099151

>>24098684
those are pretty fucking bad examples.

providing liquidity = you sell all along the price rise and buy all along the price drop. you're literally always down for a trade at whatever price the assets are. when the asset price rises from 4 to 6 for example, it is like you sold a bit of it a 4.01, 4.02, 4.03, 4.04 etc, up until 6$. the impermanent loss is the difference between holding to sell at 6 the entire stack or selling along the way up while collecting trading fees.

>> No.24099218

>>24099036
as the coins drift apart there is some impermanent loss. It is a small amount until they drift apart far enough from where you initially staked them. I really never dove into the math more than that or even am confident with that much but it was enough to dissuade me from liquidity providing and ive found amazing opportunities to take advantage of liquidity providers in the past

>> No.24099324

>>24098594
I must be 45 IQ because now it makes sense

>> No.24099457

>>24098428
in traditional way, exchanging stocks and crypto works like a normal transaction where one person sells a token to another for a price they both agreed on, and the exchange only is a middleman in this transaction, that's how CEXes work, like Binance
but in a decentralised exchange, you cant place a sell or buy order that stays there for someone to come and make a transaction with you, and the solution to that is making two pools for every token, where you come, take a token you want to buy from one pool, and then put the pair in the other one, on a rate that's calculated by some algorithm or some shit
but those pools can't be created from thin air, that's where liquidity providers come to action, and put both tokens in their respective pools, and take fees from every transaction
but, let's say your shit token turns out to be shit, and people come to the exchange en masse to sell it, they dump the shitcoins in the pool, and take ETH from it, and you end up with a big vase of worthless shitcoins and little to no ETH left in it