What is Impermanent Loss in Crypto? (Animated + Examples)
ฝัง
- เผยแพร่เมื่อ 15 พ.ค. 2024
- Are you wondering what exactly Impermanent Loss means? In this video, we cover 2 easy to understand examples that explains the what causes impermanent loss when providing liquidity to a liquidity pool. There are many cryptocurrency topics that are difficult to grasp, but we hope to share some ideas that make understanding impermanent loss a little easier!
Join our exclusive discord community:
/ discord
Explore More Whiteboard Crypto:
Facebook: @whiteboardcrypto
Instagram: @whitreboardcryptoteam
Website: www.whiteboardcrypto.com
Man, I dicovered your channel just one hour ago and I'm having a Whiteboard Crypto's video streak.
it would be great if you included the fees that liquidity providers earn to show that providing liquidity doesn't always end in a loss
Opportunity cost of being a liquidity provider earning fees vs owning crypto outright price appreciation
This makes sense. But the video helps greatly as well. Thank you both
Beautiful.
I stumbled upon an absolute gem of a channel here, keep it up!!! When is the "how to reduce risk as a liquidity provider" video coming?
Very soon, we have a bunch of videos in the works!
no suhc htin gas easix or bx or etc
@@WhiteboardCrypto i think it exists already, don't forget to add it to the description 😉
These playlists are a fantastic place to start in the world of crypto. Thanks for taking the time to put them together! Amazing doodle skills too! They really help demystify things for me!
Have shared the channel with a couple of friends and will see what I can do about sharing wider.
I'm liking every video you do, I want to support the channel because of the great work you are doing guys!
I don't understand how you can explain something so well.. time and time again..
I enter your videos completely lost and leave much more knowledgeable.
Easy to understand and very clear. Thank you.
you are one of the best around!!!!... cheers from Mexico!!!! keep it up.
Great explanation! Could you by using this video as a base to follow, explain the points to which the LP is triggering a tax event?
What needs to be tracked to assure accuracy in calculating the tax consequence?
Best explanation on YT, thank you.
Great jobs guys. I'm truly grateful for all that I have learned from your videos thus far and plan to act on it. Halfway through the video, I wondered how the trading fees could compensate for the impermanent loss. Good to see you even touched on that at the end.
Thank you very much. The best I had found so far.
It's a precious service that you're providing. Compliments. 💐
Thanks. This was helpful. I was about to withdraw early from a pool.
Daily dose of internet, lucaas and whiteboard crypto are the most no bs channels on youtube.
number one , perfect explain , Thank you
hi, this is a great video about impermanent loss! I just want to ask you something : what about the fees for the trades that the LP earns? maybe i'm blind but i think you didn't considered them at all, why is it?
I think they are a big part of why someone would be a LP, so the goal should be more like : impermanent loss < fees + new value of the liquidity pool.
let me know if I am missing something, and thank you again for your amazing content
Also, divergece loss or gains really needs to be put in context compararing the % of divergence against the fees and rewards that maybe offered by the pool protocol. I hope you pick up from here for future videos
I was wondering how that works also. I can't say I totally understand any of this but am I correct in understanding that this explanation does not take LP rewards into consideration? I could very well have missed something.
@@johnnatoli1728 correct it does not
Yes, no rewards are taken into account.
This is a amazing Video. However I think we should also include possible earning if we stake the LP & how we reconcile the stake earring + LP fee again the IL. I do want to see more on how the LP fees get added to your LP or paid to you for creating the LP. It wasn’t as clear as your many other videos
Great content guys!! Thanks 👍👍
Good amount effort has gone into making such an informative video though the last minute is not that clear where you showed the status of Imperm. Loss VS price movements of assets + that chart/graph still looks scary :)
Could have explained that in a separate video though.
However, overall a gem of a video.
Thank you.
Your videos are awesome, thank you
at 2:52 you said the price GOAL is 110,00... but if I spend 488 dollars to buy 4,652ETH, my balance goes to ETH= 95,37 priced at 104,88usd, and balance USD=10488 priced at 0,953usd. I didn't fully understand why the price goes to 110,00 with that buy... And why did you used that amount of 488,00? was it the price you should spend, given the circunstances, to make the AMM rebalance ?
I was asking myself the EXACT same question.I hope to get an answer...
Hi, my calculations were exact the same before I assumed, that value of USD remains the same and adds to the prior USD to ETH ratio (so now it is 10488 USD to (95.347ETH*110$/ETH)=10488$)
Yes I have the same question. If we follow his video about Automarket Maker, we will see that it would 104.88 $ per 1 ETH
???!!!
I found the reason: 110 $ is price of eth compared to later usdt in the pool, because price of usdt later is down compared to the beginning
@@daniildergunov4849 so you are saying that the liquidity of the assets can grow due to the fact that the stablecoin always stay the same.
Just so i make myself clear:
in the beggining we had:
- 10 000 usd on stablecoin
- 10000 usd on ethereum
after the swap we have:
10 488 usd on stablecoin
10488 usd on ethereum
so the total liquidity of each asset grows because the price of the stablecoins stays the same and the liquidity of both has to be the same.
if you see this answer pls say if you agree or disagree, I would realluy apreciate it :)
Nice work folks.
When you cash out do you receive the same number of coins you provided or do you get the value of the coins you provided?
This is what I want to know as well
They really are amazing animations.
Great video that explained it very well. So in order to take profit both pair in the pool of coins must be virtually equal in value to pull your profit. However, how is this possible in a very high volatile crypto coin market? Is it a matter of gambling? is there any proven strategy on when to get in and out? If there is any expert on this to help explain this part as I think when I read many comments I feel like people they do not know what they are doing, it just a matter of time when they get hit by a big loss
Thank you for so much knowledge. How about if one of your pair pumps, you gain a huge % of impermanent loss. But a month after your 2nd coin pumps too. Does that nullify the impermanent loss. I am just confused if the movement should be at the same time to have a lesser impermanent loss.
I'm gonna make a comment to every video😂 ..this channel doesn't stop surprising me. .
Great video, thank you! Could you tell me, what software do you use for animation?
Great channel and content!
good video - On average How long do you hold positions - a week, two weeks...?
Hey thanks for the video! It's the only one I watched covering price drop of the volitile asset in a LP! Bravo!
Still I have got a question... in your case, when price of ETH drop, the LP provider will get more ETH? Sounds like a good hedge in bear market if an investor is bullish in ETH
Yes, you can technically mitigate some of your losses by providing LP, especially if the fees are high, and even more so if that platform is paying you an extra fee as an incentive. There are "impermanent loss calculators" out there that allow you to mess around with the numbers to quickly see their results, we may create a new video explaining how the math works using a few more examples and give the calculator a shoutout :)
Hi, excellent video I helped me a lot I have a doubt where 14285 comes from in 05:28 ? I know that 1 million comes from the constant product and 130 in the ether quantity in the pool but I don't get where 14285 comes from
Hey man, I would love see a video on mark cuban’s iron finance bank run. I am reading thru the technical details but still can’t figure out what happened. Would be beneficial I think.
Really great crypto channel, i wish you 1M followers soon, that would mean people want to learn something, apart from learning the hard way by losing their money while trading on sh..coins without any idea about crypto at all. Congratulations.
Question: Is this similar to having equities that are "value traps"?
thanks for the knowledge
this channel is great, i just wish my brain would store this knowledge better :D
Great Video!
Awesome video like all Whiteboard Crypto videos. I did not get the part where $7800 + $7692 equal $15295.
Awesome vids! I have two questions though.
1. When you cash out from the liquidity pool, don't you get back your eth? Why would you lose?
2. Is the impermanent loss covered by the rewards??
1) you cash out your "portion" of the pool. So you might own 1%. Sometimes that 1% is 5 ETH, sometimes its 5.5 ETH, depending on how the AMM traded your two tokens. 2) sometimes yes, but not always. You make the most when you supply liquidity AND the price goes up, but that's not always the case because crypto is super volatile for many reasons
Great questions, I was about to ask the same. Such a fantastic video @whiteboard crypto. Keep it up
Hi Whiteboard Crypto. Do you know where I can find a good explanation on how to buy crypto assets at a reduced price from a liquidity pool? Thanks!
Thanks alot sir !
I'm new to Bitcoin and would like to invest. But I've got no idea on how to make real profits. Can someone please tell me how to go about it.
I'm pretty new and feel I have much to lean before placing my first trade. Are you suggesting I lookup for an expert for trading guide.
Yes but finding a high rated broker/expert to guide you isn't that easy.
Hey, I heared of an expert called Tiffany they says she'd pretty good but I would really like to speak with her for guidance.
I invested with Tiffany some time ago and made huge profits. I'm currently a 19k weekly package and the returns keeps coming. Honestly I felt like quieting my job and focus more on her trades.
I stumbled across recommendtions and testimonies of people expert Tiffany has helped, and I decided to try her out...my 11th weekly return is currently on its way.
How do you calculate the number LP tokens you receive given the pool's value ratio and product constant (i.e. 50/50 and $10M), the pool's current asset ratio (i.e. 100 of asset A, 150 of asset B), and the current value you want to provide (i.e.. $10,000)? Wha't the formula for the number of LP tokens given those information?
Depends on the pools balance, if you deposited 20% of the pools liquidity then you get 20% of the LP tokens.
Thank you :)
No way I am explaining this to my grandma.
Thank you.
Phenomenal
About liquidity pools. Is the price of an asset in the pool isolated from the rest of the market? I guess my question is why isnt the price of the Eth in the pool reflected of its true value in the marketplace? In addition what happens over time as new liquidity providers want to add tokens to the pool? Are they doing the 50:50 split at the current market value, or based on what the equilibrium is currently set in the pool?
In a scenario where I put in two correlated tokens, say 10 wETH and 10 stETH, I will receive an LP token representing my stake in the pool. The price of ETH in dollar terms goes down 20%, what will I receive when i burn the LP token to exit the pool? Will I get 10 wETH and 10 stETH i put in? Or will i receive 8 wETH and 8 stETH because the price went down? Is there any risk if the volume of the liquidity pool is low and spread is high and why? According to your video there should not be any impermanent loss as the assets are correlated.
Thanks for explaining!
Has the video about reducing our risk as a liquidity provider been made?
You should collaborate with finematics, another great channel like yours.
So if we invest long enough, the yield generated from the liquidity pool could offset IL right?
can you have a impermanent loss on Staking? or its only a liquid provider on a Liquid Pool?
Great video
Keep it up ser!
That's the plan!
What about when u get reward in the token you provided in the liquidity pool ie. you provide eth and usdt in a pool and receive eth as a reward can that cancel out your impermanent loss?
de centralized lol by putting a buy/sell order to a central server that approved transfer of a item (crypto) from one wallet to another. whats different then a bank zelle to another?
Thank you
Could someone break down example two using the AMM equation (x*y=K). I was able to get the first example but am struggling to get the same answers in the video for the second example.
Much appreciated
Hello, brother, I have a little bit of confusion while calculation guide me through this. From where did you get 1million to divide to 130 eths because if we multiply 10,000 to 10,000 it gave us 100,000,000 and second thing is if we divide 1million to 130 it gave us 7,692 then where did 14,285 dollars come from ?
So if ill be liqudity provider? The token that i invested will decrease? Or just the value? Tnx in advance.
So does this mean you shouldn't provide liquidity to pairs where one of the coins is a stable coin? The value of those never actually changes right?
Transaction fees could cover the impermanent loss if there are enough transactions done right ? This should be taken into account
Thanks for this content man! very informative. have you all heard this mercor finance? they are building AI trading, is that possible ?
great videos
So when you provide liquidity, your coins' value upon deposit keep their price and are not subjected to the volatility of the market??
I mean by the time you pay the exchange fees, slow ass Arbitrum fees and so on, is there even any 'arbitrage' opportunity left?
Correct me if im wrong but on 5:24 shouldnt 1 million be 100 million? because $10k (100 eth) x $10k (stable coin)?
Shouldn't we also consider fees earned through the transactions to calculate the impermanent loss or profit?
Please, I rely on you to make me better understand ICP🙏🏾🙏🏾
I am not sure, how about pair with unstable coin and stablecoin pool? Stablecoin would not rise and maintain the same 1 USD , so it will definitely impermanent loss forever if the unstable coin move up or down.
hey can you please explain the math behind this, because as per your AMM video if we take out 4.652 eth the price should be around $105. How do you get $110?
Even I have this question. Can someone please explain?
How did you come up with the number of Ether that was provided?
So basically all our bank deposits go through impermanent losses due to inflation but we never knew.
Was 488 and 30 a derived numbers or did he formulate them?
is there still a discord? link doesnt work anymore
At 4:12, you mentioned if ETH goes back to $100, the impermanent loss is basically canceled. I don't really get it. Wouldn't the liquidity pool continue to lose value for the arbitrager's gain in essentially the same way when ETH rises to $110 in your example?
Damn, I usually speed up videos, it the first time that I had to see a video in slow motion
It appears to me that "Impermanent Loss" is more akin to "Opportunity Cost" than it is to say an "Unrealized Loss" on a stock or other security? Is that right? What I'm asking is, at the end of the day, the LP staker can get their stake back and the price increase is still there right? It's not like the LP staker can only ever extract out the exact monetary equivalent of the original stake at new market prices right? So then, if I understand this correctly, Impermanent Loss is just a sunk cost fallacy that's not worth considering? I've watched the liquidity pool video, this video twice, the AMM video, and the more complex Impermanent Loss videos. I just can't grasp the big concern over this UNLESS, at the time of extracting your original stake from the LP your units of the currencies contributed are adjusted (downward in the case of a price increase of one coin) so that the total monetary extraction is only equivalent to your original stake. Am I missing something here?
I think you're absolutely correct lol
Sorry I’m very poor in maths - but from your analogies would that simply means in reality we better hold on to our cryptos rather than invest them in liquidity pool?
Thank you for explanation! One question though, where does that 1 mil dollars come from?
I also have this question
Its not a very good quality video. I discovered multiple mistakes but at least the basics are correct.
yeah also wondering this. is it just a mistake?
Your channel is amazing, I had one question. After watching the AMM video, and this one, you mentioned that one way to profit would be to both assets value going up, but since it's a constant product value, how can one token go up and so the other?
For example, imagine I have a pair BNB/FTM, $600/$3. If the price of the FTM token goes up, eventually the price of the BNB will go down on the LP. But then the price of the BNB increased as well on Binance ($650), and FTM stayed the same (let's say, $4), people will start buying BNB on Binance and trading for FTM, meaning that the price of the FTM will go down (on the LP). How can these values ever be "synchronized"?
I see you're truly paying attention. What you've pointed out is accurate.
Based on my understanding of the video on Automated Market Maker, If the trader puts $488 inside the liquidity pool which initially has $10,000 and 100ETH
Liquidity pool:
$10,488
$95.347
As a result of this, 4.653 ETH will be given to the trader in exchange for $488. When I calculated the current price of ETH at this point,
1 ETH = 10,000 / 95.347 = $104.88
1 ETH now costs $104.88
But, how come is it that 1 ETH costs $110 after the trader exchanged 488$ with 4.653 ETH?
I'm confused here.
As well as 10,000-7692 isn't 2307; and 1000,000/130 isn't 14285 😅
But anyway, it's a nice explanation :)
What happens if you only provide one coin to the pool eg: eth/usdt pool where you only provide eth (this is possible on binance but there is a fee)
The way people talk about crypto trading is profitable, please can someone help me on the right path
Forex and crypto trading is one of the profitable money exchange service that elevate Investors and their financial status
Poor orientation has cost some failure in Forex trade
@@a.loismurphy9070 You're right, how many millionaires do you know who got rich from a savings account? This is why I am investing more crypto currency and it has paid off.
I have been seeing comment about Mrs Allie Murray on trading, she must be good base on what I have been seeing
I'm suprise someone mentioned Mrs Allie Murray, I thought am the only person trading with her.
She recovered my lost when I was trading by myself.
The examples used in here are with a stablecoin. As the price of the crypto (the other coin, i.e ETH) is always changing, my conclusion here is that providing liquidity with a stablecoin is a bad idea?
not necessarily. Providing LP essentially forces you to sell the variable coin as the price goes up, and buy it back again on the dips. So you're not losing money; you're maybe just not making as much as you would have if you timed the top and bottom perfectly... which you probably won't do, anyway.
When you do those calculations you didn't count transaction fees right? Maybe that will compensate the liquidity provider?
I mean from what you've shown in the video, if you don't count the transaction fees, and if you provide (unstable, stable) coins pair to the liquidity pool, you will always lose money no matter the price of the unstable coin goes up or goes down.
Does the price of the stablecoins in a pool ever change?
Make a video about bscscan please
So how often do you adjust your liquidity and when? What's the best way to do that?
nice video, however there was a calculation mistake in the second example, the value is $15492 rather than
$15292
edit: also for the 6:49 should it better if they maintain same price ratio as when the liquidity pool started rather than same price, simply a question i want to understand more
So... did I got that right? Someone can come and buy 1 ETH to the price of 100$ from the liquidity pool you're providing liquidity to it and sell that 1 ETH to the price of 110$ on let's say Binance for example (if the realtime price is higher then the worth of ETH in the pool)? And he could do that as many times as the price of ETH in the liquidity pool is not rising to the actual price of 110$? If that is true than I need to know how to find those liquidity pools which are selling ETH for a discount price!!!
Please correct me if I'm wrong and sorry if somethings not written correctly... english isn't my native language :)
2:42 In example #1, why did the stable coin value increase from $10,000 to $10,488? I thought only ETH value increased... Overall excellent video, appreciate it!
Because a user bought eth and provided stable coin to the pool . Eth was increased as well .
@@abhayagarwal5097 I have a small question here. Is the price of the coin going up because it is a stable coin and will always be 1Stable coin= $1 and If it wasn't a stable coin would the value of that coin go down to adjust the equation AMM (x*y=K)? Thank you
one question: if you provide liquidity you will get the ETH back, right? You provide 1000$ in ETH and get the fees. Then you want to have the ETH back and the price went up to 1200$.
Or is my thought wrone that I assume that the price will rise in the long-term?
Why is it a loss if you hold it because it is still the same amount of ETH and you even receive some of the fees. I still don't get it.
Can anyone share how to calculate the 30 eth for the example of selling the eth to the LP until it reaches 60 dollars?
Can you have an impermanent loss when using usdt