03-06-2023, 05:30 AM
Reminder that you could suffer 'impermanent loss' when staking / providing liquidity
<!-- SC_OFF --><div class="md"><p>Some of you might not be aware that you can actually miss out on gains <a href="https://www.reddittorjg6rue252oqsxryoxengawnmo46qy4kyii5wtqnwfj4ooad.onion/r/CryptoCurrency/comments/11ckvml/a_complete_beginners_guide_to_staking_moons_on/">while staking your Moons</a> or maybe you don't know how it works (just like I didn't know until today).</p> <h1>How does impermanent loss happen? (easy example)</h1> <p>Let's imagine two guys. I've chosen typical US names because most of you are from the US: Cleetus and Tyler. Both will invest $3200.</p> <ul> <li>Cleetus buys ETH along with his Moons because you can only provide liquidity with two Tokens that are being traded on SushiSwap. He holds <strong>8,000 Moons and 1 ETH,</strong> which is both the same amount in USD (1,600USD). He will earn <strong>x% APY</strong> for providing liquidity.</li> <li>Tyler decides to hodl. He buys <strong>16,000 Moons</strong> instead.</li> </ul> <h1>One year later</h1> <p>ETH didn't make any big moves and is still around 1,600USD, while a <strong>Moon is now worth $0,80.</strong></p> <ul> <li>A liquidity pool has to hold equal worth of Tokens. Arbitrage traders took advantage of that and exchanged Moons for ETH. As a result, <strong>Cleetus now holds 2,000 Moons and 4 ETH.</strong> That's $9,600, nice! He also earned 5% APY.</li> <li>Tyler still has his juicy 16,000 Moons, they are now worth <strong>$12,800</strong></li> </ul> <p>As a result, Cleetus missed out on gains. Still, it is called <em>impermament</em> loss. As long as they don't sell, it's not realized. But if you believe in the future of Moons, you will also believe that they will do better than ETH in a bullrun. ETH already has almost 9,000x of Moon's market cap!</p> <h1>tl;dr</h1> <p>Your staking reward has to be high enough to cover for impermanent loss in the future. If Moons climb much faster than ETH, you will suffer impermanent loss.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/YourMomIsTooHeavy"> /u/YourMomIsTooHeavy </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/11j3i4o/reminder_that_you_could_suffer_impermanent_loss/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/11j3i4o/reminder_that_you_could_suffer_impermanent_loss/">[comments]</a></span>
<!-- SC_OFF --><div class="md"><p>Some of you might not be aware that you can actually miss out on gains <a href="https://www.reddittorjg6rue252oqsxryoxengawnmo46qy4kyii5wtqnwfj4ooad.onion/r/CryptoCurrency/comments/11ckvml/a_complete_beginners_guide_to_staking_moons_on/">while staking your Moons</a> or maybe you don't know how it works (just like I didn't know until today).</p> <h1>How does impermanent loss happen? (easy example)</h1> <p>Let's imagine two guys. I've chosen typical US names because most of you are from the US: Cleetus and Tyler. Both will invest $3200.</p> <ul> <li>Cleetus buys ETH along with his Moons because you can only provide liquidity with two Tokens that are being traded on SushiSwap. He holds <strong>8,000 Moons and 1 ETH,</strong> which is both the same amount in USD (1,600USD). He will earn <strong>x% APY</strong> for providing liquidity.</li> <li>Tyler decides to hodl. He buys <strong>16,000 Moons</strong> instead.</li> </ul> <h1>One year later</h1> <p>ETH didn't make any big moves and is still around 1,600USD, while a <strong>Moon is now worth $0,80.</strong></p> <ul> <li>A liquidity pool has to hold equal worth of Tokens. Arbitrage traders took advantage of that and exchanged Moons for ETH. As a result, <strong>Cleetus now holds 2,000 Moons and 4 ETH.</strong> That's $9,600, nice! He also earned 5% APY.</li> <li>Tyler still has his juicy 16,000 Moons, they are now worth <strong>$12,800</strong></li> </ul> <p>As a result, Cleetus missed out on gains. Still, it is called <em>impermament</em> loss. As long as they don't sell, it's not realized. But if you believe in the future of Moons, you will also believe that they will do better than ETH in a bullrun. ETH already has almost 9,000x of Moon's market cap!</p> <h1>tl;dr</h1> <p>Your staking reward has to be high enough to cover for impermanent loss in the future. If Moons climb much faster than ETH, you will suffer impermanent loss.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/YourMomIsTooHeavy"> /u/YourMomIsTooHeavy </a> <br/> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/11j3i4o/reminder_that_you_could_suffer_impermanent_loss/">[link]</a></span> <span><a href="https://www.reddit.com/r/CryptoCurrency/comments/11j3i4o/reminder_that_you_could_suffer_impermanent_loss/">[comments]</a></span>