There Is A New Fix For Impermanent Loss Proposed On Avalanche

There is a new fix for impermanent loss, one of the most serious DeFi flaws, which is proposed by avalanche-based Trader Joe

The creators highlighted the usage of Liquidity Book (LB) with an extra variable charge swap functionality to “enable traders with zero or low slippage transactions” in a newly public whitepaper on Aug. 23 dubbed the JOE v2 Liquidity Book, produced by Quant developers and researchers Adam Sturges, “TraderWaWa”, “Hanzo” and software engineer “Louis MeMyself”.

/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

According to Trader Joe, the new technique would reduce the immediate loss sustained by so many liquidity providers (LPs) on other DEXs amid market instability.

Impermanent loss occurs when the price of a token fluctuates after depositing it in a liquidity pool-based automated market maker as part of yield farming – a sort of investment in which one lends tokens in exchange for incentives (not the same as staking).

According to Markus Thielen, a chief investment officer of digital asset management firm IDEG, this is one of the reasons institutional investors have been cautious in the DeFi area.

Thielen stated that his company and other institutional investors have become less engaged with automated market makers (AMMs) as the chance of temporary loss is too significant.

“As a crypto fund, we can’t just rely on ETH and BTC, we want other layer ones and alt coins to thrive, so we applaud the Trader Joe team for keeping developing and other AMM on their toes.”

Trader Joe’s Liquidity Book (LB), according to the paper, is a sort of liquidity pool (LP) that organizes liquidity of an asset pair into price bins that are traded at a fixed price.

The LB proposes a new variable swap charge to safeguard traders from temporary loss by paying LPs in the case of significant market volatility, allowing liquidity to be handled more effectively in response to abrupt price fluctuations.

Trader Joe’s LB will also provide zero to low slippage transactions, allowing traders to get better purchasing rates.

If correctly implemented, this might be a huge advance in DeFi, as recent research found that more than half of Uniswap V3 LPs lost money during market turmoil because temporary loss surpassed swap fees. It appears that there is a new fix for impermanent loss.

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

Thorchain is another DeFi system that provides LP deposits with permanent loss protection after the first 100 days (with partial protection before that point).

The Avalanche smart contract platform serves as the foundation for the Trader Joe protocol, which bills itself as a “one-stop decentralized trading platform.”

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