What is Impermanent Loss in Crypto? (Animated + Examples)
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- Опубліковано 30 тра 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!
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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 😉
I'm liking every video you do, I want to support the channel because of the great work you are doing guys!
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.
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 :)
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.
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.
you are one of the best around!!!!... cheers from Mexico!!!! keep it up.
Best explanation on YT, thank you.
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
Thanks. This was helpful. I was about to withdraw early from a pool.
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?
It's a precious service that you're providing. Compliments. 💐
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.
Thank you very much. The best I had found so far.
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
number one , perfect explain , Thank you
Daily dose of internet, lucaas and whiteboard crypto are the most no bs channels on youtube.
Great content guys!! Thanks 👍👍
They really are amazing animations.
Your videos are awesome, thank you
Nice work folks.
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.
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
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.
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.
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
Great channel and content!
Great Video!
Great video, thank you! Could you tell me, what software do you use for animation?
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.
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.
Thanks alot sir !
Question: Is this similar to having equities that are "value traps"?
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 :)
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
thanks for the knowledge
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 ?
Thank you.
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.
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!
So when you provide liquidity, your coins' value upon deposit keep their price and are not subjected to the volatility of the market??
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
can you have a impermanent loss on Staking? or its only a liquid provider on a Liquid Pool?
Shouldn't we also consider fees earned through the transactions to calculate the impermanent loss or profit?
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?
Thank you :)
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?
So if we invest long enough, the yield generated from the liquidity pool could offset IL right?
No way I am explaining this to my grandma.
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.
Great video
I'm gonna make a comment to every video😂 ..this channel doesn't stop surprising me. .
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
Thank you
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?
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?
Transaction fees could cover the impermanent loss if there are enough transactions done right ? This should be taken into account
Phenomenal
Keep it up ser!
That's the plan!
this channel is great, i just wish my brain would store this knowledge better :D
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?
So if ill be liqudity provider? The token that i invested will decrease? Or just the value? Tnx in advance.
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 :)
good video - On average How long do you hold positions - a week, two weeks...?
You should collaborate with finematics, another great channel like yours.
Awesome video like all Whiteboard Crypto videos. I did not get the part where $7800 + $7692 equal $15295.
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?
So how often do you adjust your liquidity and when? What's the best way to do that?
Correct me if im wrong but on 5:24 shouldnt 1 million be 100 million? because $10k (100 eth) x $10k (stable coin)?
great videos
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)
So basically all our bank deposits go through impermanent losses due to inflation but we never knew.
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
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 $110 in your example?
I am not sure, how about pair with unstable coin and stablecoin pool? Stablecoin would not rise and maintain the same 1 USD , so it will definitely impermanent loss forever if the unstable coin move up or down.
Sorry I’m very poor in maths - but from your analogies would that simply means in reality we better hold on to our cryptos rather than invest them in liquidity pool?
So it's opportunity cost in one side when the asset price rises. And "unrealized loss" on the other when the asset price drops. Ideally you want the price to remain stable so that your initial invested capital doesn't change and you only collect the fees.
The examples used in here are with a stablecoin. As the price of the crypto (the other coin, i.e ETH) is always changing, my conclusion here is that providing liquidity with a stablecoin is a bad idea?
not necessarily. Providing LP essentially forces you to sell the variable coin as the price goes up, and buy it back again on the dips. So you're not losing money; you're maybe just not making as much as you would have if you timed the top and bottom perfectly... which you probably won't do, anyway.
How did you come up with the number of Ether that was provided?
Was 488 and 30 a derived numbers or did he formulate them?
so im safe in impanent loss if my position is two different stablecoins?
how come the eth invested in the liquidity pool did not also go up in value?
one question: if you provide liquidity you will get the ETH back, right? You provide 1000$ 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?
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
Where's the 1M in the 1,000,000 / 130 ETH math coming from??
Same here... Didn't get where the 1M came from...
You have to watch the Automated Market Maker video, but long story short, that result is called constant product and you obtain it by multiplying token A and token B in this example it's 10 ETH * 10 000 $ = 10 * 10 000 = 1 000000
Please, I rely on you to make me better understand ICP🙏🏾🙏🏾
Damn, I usually speed up videos, it the first time that I had to see a video in slow motion
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?
Why the difference between two assets in a pool? isn't it the difference between the asset outside of the pool and inside of the pool? @4:05
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.
but you did not add the fees which is earn by liquidity provider ??
is there still a discord? link doesnt work anymore
Good video
Thanks!
You should find places to share your videos like reddit and facebook etc.
We actually have had a Facebook page for a bit but not many people follow and share just yet. Not sure about what we could do with reddit aswell, if you have any ideas?. Here is our FB page: facebook.com/whiteboardcrypto
So, basically a liquidity provider has to hope that either both assets rise or stay constant in value for the rewards to make the investment worth it. I guess that is why pools with very volatile coins also have very high APRs. Right?
Correct