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Developers AMMTrader Joe said they had found a solution to one of DeFi’s main problems: intermittent losses.
The wait is finally over….
Introducing: Liquidity Book 🌊📘
A next gen AMM protocol that is highly efficient, flexible and built for #DeFihttps://t.co/6l2FoaJ0xo
— Trader Joe🔺 | New AMM Soon 🌊📘 (@traderjoe_xyz) August 22, 2022
In a published white paper called Joe v2, experts described the use of the “Liquidity Book” (Liquidity Book) with a variable commission for swaps.
Trader Joe assured that the function will provide traders with transactions with “zero or minimal slippage”.
The solution will reduce the losses of “many liquidity providers (LPs) on the DEX during market turbulence,” the developers added.
Non-permanent losses occur in the process of holding assets in liquidity pools, when one of them is volatile in relation to the second.
Analyst TheDeFinvestor noted that for many DEXs, non-permanent losses often exceed the swap commission. For example, about 50% of liquidity providers on Uniswap V3 lose money due to this issue, according to a bancor study.
/4 Impermanent Loss
One of the most critical issues of Uniswap V3 is that impermanent loss often exceeds swap fees.
A study effectuated by the @Bancor team showed that 50% of Uniswap V3 LPs lose money.
Liquidity Book solves this problem by introducing variable swap fees.
— The DeFi Investor🦇🔊 (@TheDeFinvestor) August 23, 2022
Liquidity Book distributes the liquidity of the pair in the pool into price cells. When performing a swap, the exchange in the basket occurs at a constant price. If there are not enough funds, the swap is moved to the next cell.
The solution provides for two components of the commission: constant and variable. The latter will depend on the volatility of the assets in each pair, prompting the LP to respond to price movements. The influx of liquidity into the pair will increase the depth of the glass, which will reduce slippage.
Investment Director of IDEG asset manager Markus Thielen in a conversation with Cointelegraph called the problem of volatile losses one of the reasons for the wariness of institutions regarding DeFi. The firm, like many others, tries not to mess with AMM protocols because of this, he added.
“I have to admit that the Joe v2 white paper offers a new idea and the LPs generate 30 b.p. when conducting transactions. This is an attractive income when the future growth of the industry is unclear. We’ll see how much liquidity v2 will attract and how it improves. TVL“,” Thielen said.
Recall that ForkLog analyzed in cards how the second generation of DeFi-projects solves the problems of the “first version”, including centralization, non-permanent losses and others.
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