Showcasing Impermanent And Permanent Loss - Part 2.
Yesterday, in the first part of my series I showcased how your portfolio can change, based on price fluctuation, if you're in a liquidity pool paired with a stablecoin. Today I'm going to show you what happens in a liquidity pool, where non of the coins are stablecoins.
In case you missed my post yesterday, I exited the CUB - BUSD LP as things were not going my way and was time to join a few other pools.
45.0453 CUB / 171.193 BUSD - $342.386 - 04.08. This was my balance I exited the CUB - BUSD LP with. I decided to convert my 171 BUDS in BNB as saw no reason to hodl a stablecoin.
For those of you who are totally new to CUB DeFi, if you have funds on the platform, you can exchange tokens, no need to go to Binance. So I exchanged my 171.6088 BUSD to 0.42845 BNB, at the moment of exchanging BNB was at around $400.
This is the BNB/BUSD trading chart on Binance, at the moment of writing. Since I exchanged my BUSD for BNB, the later reached its ATH at $487.28 today. heedless to say, have I kept BUSD in my wallet, today I would have had still 171.6088 BUSD. But because I traded my BUSD to BNB, the value of the BNB I got is $208.77. I have to mention that the decision to trade BUSD to BNB was a smart one, but the rest is pure luck as no one knew BNB would go crazy like it did in the last couple of days and increase almost 21%. What can I say? I'm happy with the choice I made. Even if it starts to fall back, I don't think it will end up below $400.
My goal was to join the CUB - BNB liquidity pool with a part of the CUB I got.
30.55 CUB / 0.28 WBNB - $224.21 - 04.08
This is how my wallet looked like at the moment of joining. CUB was at $3.656 while BNB at around $400.
Today this wallet looks like this:
33.82 CUB / 0.25 WBNB - $240.14 - 04.08
This is impermanent gain at the moment. If I exit the liquidity pool now, I make a profit of 3.27 CUB and $15.93 in BNB in dollar value. However, this $15.93 profit is only valid if I convert my BNB to BUSD because the price of BNB is on a roller coaster ride, it could go up in the upcoming period but it could as well fall back.
I also need to mention the 1.389 CUB I could harvest from this farm.
In this liquidity pool both CUB and BNB are influencing your balance, but in this case BNB has a bigger influence as it sky rocketed in the past couple of days, while CUB pretty much stayed the same, the price oscillation was minimal, compared to 21% of BNB.
Now let's see what would have happened if I would have stayed in the CUB - BUSD LP. At the moment of my exit, CUB was at $3.809, now it's at $3.543. BUSD is a stablecoin, so it's always around $1, which means it's not influencing my balance, the only factor that does is CUB price.
I entered the pool when CUB was at $3.2796, co the initial price compared to $3.543 (now) would result me losing some of my CUB and gaining BUSD, which was not my goal.
So as far as profit is concerned, I'm ok with my choice but let's not forget that I can only speak about profit if I exit the pool as till then, the situation can change 100 times. Crypto is volatile, so the profit I'm talking about in the CUB - BNB liquidity pool right now is only on paper.
I don't know if you have noticed, there's another way of earning besides price fluctuation and farming. You're getting paid a certain percentage of each trade if you're a liquidity provider. The size of the payment you're getting depends on the size of your liquidity provided I suspect. At least that's what I think it would be fair.
Posted Using LeoFinance Beta
