RE: Are Liquidity Pools worth it? SPS/HIVE to be specific!
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Yeah well I'm still not touching LP's 😁
🧠 What Is Impermanent Loss?
Impermanent loss happens when the price of the tokens you've put into a liquidity pool changes compared to when you deposited them. The bigger the change, the more you're exposed to impermanent loss.
It's called "impermanent" because the loss only becomes permanent if you withdraw your funds from the pool when prices are still imbalanced.
📊 Example:
Suppose you provide liquidity to a pool with two tokens: ETH and USDC (a stablecoin), in a 50/50 ratio.
You deposit:
1 ETH (worth $1,000)
1,000 USDC
Total value = $2,000
Over time, ETH price doubles to $2,000.
To maintain balance, the pool automatically rebalances your assets (using an algorithm called constant product). This means:
You now hold less ETH, but more USDC.
If you withdraw now, your total value might be less than if you had just held the ETH and USDC outside the pool.
That difference is your impermanent loss.
That sounds like a lot of ChatGPT NONSENSE!
But also that makes a lot of sense too, and fair point. BUT since prices of any Splinterlands things only go up.. It's a win win ;)
Yeah it was totally ChatGPT but still true 😁