I've always been irritated by the absurd jargon "impermanent" loss.
One question I had was whether the (admittedly much lower) APYs for stablecoin-stablecoin LPs were more sustainable, but then of course it occurred to me that you exchange day-to-day price movement risk for one off collapse in one of the stablecoins.
It's funny that many write-ups say one way to remove impermanent loss is to target low risk pairs like stablecoins. Sure. It's like they knew the top-line data, and never looked at particulars. Stablecoin generate paltry returns, about $10k revenue on $100m, around 2%. There is little risk, however, so this is actually a very good true risk free rate of return (average historically between 0.5% and 1.0%). So, while actually realistic, and highlighting a good thing, this is outside the realm of what you see in crypto, where returns start at 10%,
Hi , just read about 3 posts ..thank you for the learnings .
just curious to know do you post on substack or the falkenblog or both. want to start following .
1) what are your views on Chainlink?
2) what do you see as the best approach for exchanges on-chain?
This was really good.
I've always been irritated by the absurd jargon "impermanent" loss.
One question I had was whether the (admittedly much lower) APYs for stablecoin-stablecoin LPs were more sustainable, but then of course it occurred to me that you exchange day-to-day price movement risk for one off collapse in one of the stablecoins.
It's funny that many write-ups say one way to remove impermanent loss is to target low risk pairs like stablecoins. Sure. It's like they knew the top-line data, and never looked at particulars. Stablecoin generate paltry returns, about $10k revenue on $100m, around 2%. There is little risk, however, so this is actually a very good true risk free rate of return (average historically between 0.5% and 1.0%). So, while actually realistic, and highlighting a good thing, this is outside the realm of what you see in crypto, where returns start at 10%,
But isn’t it even worse than this? If usdt depegs, the LP is going to end up with a huge number of USDT it bought on the way down?
A 2% return on a US Treasury would be a lot safer, but at least it's not offering an obviously implausible return.