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Impermanent loss in LPs where one side is a stablecoin

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Direct from the desk of Dane Williams.


Guide to crypto impermanent loss in LPs where one side is a stablecoin.

The other day I spoke about how I answer what is impermanent loss in crypto a little differently to others by embracing my LP position as a whole.

The premise being that I’m happy to accept IL when IL% < APR%.

Meaning I don’t care what happens to the value of each of my sides, because all that matters to me is being in profit overall.

I want to stack more HIVE, so I use LPs with a HIVE side and think about the position denominated wholy in HIVE.

Simple, right?

Well, one of the best types of LPs to use for this strategy, are LPs where one side is a stablecoin.

Let’s take a look at these types of pools in a little more detail and impermanent loss within them.

Benefits of LPs where one side is a stablecoin

The benefits of LPs where one side is a stablecoin are clear.

Put simply, having one side in a stablecoin effectively lowers your risk by cushioning you from volatile price drops.

They are especially effective if you believe the price of your other asset - the one that you want to stack more of overall - is going to fall in the short term.

What ends up happening here is you are DCAing into that asset from a stablecoin.

A liquidity pool with one side being a stablecoin also ensures you much more consistent rewards.

The reason for this is again that the stablecoin side of your position better absorbs downswings of your main token.

The result is a more predictable income in the form of rewards generated.

Now in saying that they dampen volatility to the downside and thus reducing risk, having a stablecoin side can be a double edged sword.

Just keep in mind that this dampening doesn’t discriminate between market direction and your ability to earn on upside movements will also be limited.

But as we’ve already gone over, this can be a small price to pay if the APRs are high enough.

Examples of LPs where one side is a stablecoin

As someone who is trying to stack more HIVE, the obvious example of LPs where one side is a stablecoin to use are:

  • SWAP.HIVE:SWAP.BUSD on BeeSwap: Currently offering a 26% APR.
  • bHIVE:bHBD LP on Cub Finance: Currently offering a 22% APR.

Both excellent choices with APRs much higher than the 10% you can get from curation rewards if you simply powered up that HIVE.

The Diesel Pool on Hive-Engine is incentivised by the BXT token, while the Cub Finance pool is obviously incentivised by the CUB token.

Both tokens generate revenue from their own Hive bridges that is then used to generate real value for their native token.

Meaning if you want to try this stablecoin LP strategy, you really can’t go wrong with whichever pool you choose.

Best of probabilities to you.

Posted Using LeoFinance Beta