Discover and read the best of Twitter Threads about #aelfDeFi

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#aelfDeFi What is impermanent loss?

1/ Impermanent loss happens when the price ratio of deposited tokens changes after you deposited them in the pool.

The larger the change is, the bigger the impermanent loss.

#aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
2/ This is why AMMs work best with token pairs that have a similar value, such as stablecoins or wrapped tokens.

If the price ratio between the pair remains in a relatively small range, impermanent loss is also negligible. #aelf #blockchain #aelfblockchain #aelfFAQ #aelftech
3/ On the other hand, if the ratio changes a lot, liquidity providers may be better off simply holding the tokens instead of adding funds to a pool.

Uniswap pools like ETH/DAI that are quite exposed to impermanent loss have been profitable thanks to the trading fees they accrue
Read 5 tweets
#aelfDeFi #DeFi #aelf What is a liquidity pool?

1/ Liquidity providers (LPs) add funds to liquidity pools.

You could think of a liquidity pool as a big pile of funds that traders can trade against.
2/ In return for providing liquidity to the protocol, LPs earn fees from the trades that happen in their pool.

In the case of Uniswap, LPs deposit an equivalent value of two tokens – for example, 50% ETH and 50% DAI to the ETH/DAI pool. #aelfDeFi #DeFi #aelf
3/ Hang on, so anyone can become a market maker? Indeed!

It’s quite easy to add funds to a liquidity pool.

The rewards are determined by the protocol. For example, Uniswap v2 charges traders 0.3% that goes directly to LPs. #aelfDeFi #DeFi #aelf
Read 8 tweets

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