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Thursday

29 October 2020

Bancor updates DEX to try a new approach against impermanent loss

Bancor updates DEX to try a new approach against impermanent loss


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Impermanent loss, also called divergence loss, affects exchanges based on automated market makers like Bancor or Uniswap.

Liquidity providers (LP) may take out less money than they would have had if they just held the tokens separately — despite the fact that they earn trading fees from the protocols.

There has also been a growing realization in the industry that impermanent loss is impossible to truly solve.

It’s introducing the concept of impermanent loss insurance, which guarantees that liquidity providers will receive up to 100% of their initial capital, plus fees accrued.

The solution is in some ways similar to how protocols like Uniswap are currently subsidizing some liquidity providers with new UNI tokens.

The expectation is that with enough usage and in periods of low volatility, deflation through fees will prevail and accrue value for token holders

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