Last week I staked some ETH as well as a couple other pairs into the liquidity pool. I was just curious as to how it was doing and so I checked on the progress even though I knew it wouldn’t be much. When I checked though it says that my share of the liquidity pool is actually much less than I staked about 1/8 less to be precise. How is this possible and what is the solution?
This is due to impermanent losses, overtime, those losses can disappear.
This is absolutely, 100%, NOT GUARANTEED and requires the value of ETH and PRV to move back to the original exchange rate as when you funded the liquidity pool.
This is currently the fundamental risk of being a liquidity provider in an AMM system.
There are parties working on a solution/system that doesn’t contain that risk and I believe Incog are looking into it too.
Hopefully things get fixed relatively soon.
Hey @Brakley yep, as guys mentioned it’s impermanent losses. While calculating this you should count on two more things
- the program was designed to cover such loses Liquidity rewards program v2
- when the price fluctuates losses appear and when the price goes back, losses will disappear.
Thanks for clearing it up