Using Impermanent Loss on Cub Finance like a Champ
For everyone that has been enjoying harvesting their CUB on a semi regularly basis, you are likely not at total ease due to the fact that if you are providing liquidity, you are also facing the possibility of impermanent loss. In this article, I share with you a few of my strategies to factor Impermanent Loss into your game plan.
Impermanent Loss
If you don't need a break down of what I.L is and just want to go to the meat and potatoes, jump ahead, there is nothing to see here.
Impermanent loss occurs when one coin in a liquidity pool goes up or down more than the other coin. As prices adjust, so does your holdings in the liquidity pool. For example, to make it really simple, let's say that you are providing $1000 of liquidity in a pool with coin A having a value of $1, and coin B having a value of $2. As it stands, you are holding 500 of coin A and 250 of coin B. Remember, the pool always will have 50% or each token based on current valuations.
Following me so far?
Now, let's say that coin B goes up overnight to $2.50. That is great, the value of your pool has gone up! But... not as much as it would have if you were just holding coin B outside of a liquidity pool. What happenned?
Due to the rising price of coin B, the amount you hold in the liquidity pool has changed as you always have 50% of coin A and 50% of coin B. So, since your holdings went up $125 (outside of the LP), it doesn't really reflect that way as your pool has been pillaged for Coin B. Now you will have 559 of coin A and 223.6 of coin B.
If you do the math, you will see that you did not make out quite as well as you would have simply holding coin A and coin B outside of a liquidity pool. You have $1118 in value, whereas you would have had $1125 outside the pools.
This is why the farm you are providing liquidity to is dropping some CUB to you, to offset impermanent loss and reward you for assuming some risk providing liquidity on a decentralized exchange.
I use this tool to calculate impermanent loss, and did so in the scenario above. You can use it to speculate where your position will take you in any DeFi project.
That's nice, but how do you avoid it?
I don't exactly get to avoid it. I position myself in pools that allow me to capitalize off of it. Let me explain.
I want LEO and CUB more than any other coin in the ecosystem. I like BTC, ETH and BNB, but the rewards come from pooling CUB/BNB, CUB/BUSD and LEO/BNB. Long term, there are huge gains, in my opinion, for CUB holders and LEO holders. These are the two I want to grow my stake in the most.
Since I like LEO and CUB more than BNB, pooling with BNB, (which is one of the most bullish tokens in the entire crypto market) will mean that I will end up with more CUB and more LEO. The mass exodus from ETH to join DEFi projects on the Binance Smart Chain bodes very well for BNB. I am going to use that momentum to grow my CUB and LEO holdings.
If I were in the CUB/BUSD pool, my total CUB holdings will have dropped hard when CUB jumped from $1.80 to $4. If you think that the CUB token jumped too high and went up too fast and is due for a pullback... that is when it is advisable to jump into the CUB/BUSD pool, collect some high % CUB yields and earn bonus CUB's due to the drop in price of CUB to BUSD. I am avoiding the CUB/BUSD pool like the plague otherwise. I know @edicted has done a good job of explaining why CUB/BNB is the CUB pool to be in.
Wen Project Blank?
We haven't heard from @khaleelkazi for a while, and I am sure that is because he is busy creating more value for us in the LEO ecosystem. We cannot be too far away from the much anticipated launch and I am really hoping that LEO/BNB poolers on CUBFinance will get a drop of PB tokens for the LEO they have staked in the pool. This is is the other part of the strategy I am employing.
Pool the LEO, gain LEO due to the spike in BNB that could last for a while, and add extra Project Blank tokens to my portfolio. There is the win. Lose BNB value, gain LEO and get some extra Project Blank tokens for your trouble.
What does this have to do with Proof of Brain?
Everything! Every time I prove that I have a brain, which I feel I just did, why wouldn't I want to collect some sweet Proof of Brain tokens?
Disclaimer
I really am fumbling my way through CUB finance. I noticed my LEO balance and my CUB balance go up and this made me happier than BNB gains I lost out on. It is a win/win. Don't assume, like I wrongfully am, that BNB will go up forever, things change quick. This is crypto. Everyone has plans, and lots of them end up in the toilet. I am just sharing some excitement with you, and not telling you how to make more... in fact, I have been losing money buy appreciating my position more in doing so...
Do your own homework, let my perspective help you decide your perspective.
Posted Using LeoFinance Beta
