Zircon Finance, an automatic market maker (AMM) along with a decentralized exchange on Moonbeam, announced the launch of the mainnet network to deal with investors’ challenges associated with impermanent loss in decentralized finance (DeFi).
Impermanent loss pertains to an ailment in which investors lose assets they’d formerly focused on supplying liquidity to some liquidity pool for making money via yields. The mainnet network, dubbed Zircon Gamma, aims to counter such losses through single-sided liquidity within the Moonriver network, which tranches or splits risks from a volatile cryptocurrency along with a stablecoin.
For instance, within the situation of the ETH/USDC pool, Zircon enables Ether (ETH) to keep full exposure while making certain safety through USD Gold coin (USDC) stablecoin. Additionally, the mainnet enables each side to earn swap charges.
As described by Zircon, loat liquidity pools like ETH double their gains over regular pools but stay at the chance of impermanent loss. However, the AMM’s in-house Async LPing mechanism cuts down on the risk by a minimum of 90%.
The mechanism performs this by incentivizing liquidity pools to restock lost ETH funded through the earned charges. Talking with Cointelegraph, Andrey Shevchenko, co-founding father of Zircon, says his inspiration to produce this type of system comes from the traders’ requirement for an adaptable and permissionless solution, stating:
“So many people got burned by teams making fantastic but misleading claims about removing or paying impermanent loss. In some instances, the mechanism (involving dynamic charges) they provide just doesn’t do anything.”
Shevchenko acknowledged the obvious failure conditions in situation an expression nosedives to $, but contended that “but Zircon reduces it enough to create impermanent losses a non-issue. In addition to this, we are able to weaponize it for creating options.”
In comparison with existing players that pitch protection against impermanent loss, Shevchenko stressed the various fail-safe mechanisms which help rebalance the liquidity pools. However, he suggested users do their research when choosing their buying and selling pairs, adding that “It’s a motivation-based economic climate that you will probably work 99% of times.”
Additionally to protecting users from impermanent losses, Zircon’s differentiating factor includes supplying liquidity directly for stablecoins and cheaper swap charges. “Overall, we’re the cheaper and much more liquid choice for swapping anything outdoors of really popular pairs on Uni V3,” concluded Shevchenko.
A whitepaper lately released by Trader Joe, an Avalanche-based DeFi protocol, also claimed to possess solved the problem of impermanent loss.
/4 Impermanent Loss
Probably the most critical problems with Uniswap V3 is the fact that impermanent loss frequently exceeds swap charges.
Research effectuated through the @Bancor team demonstrated that fiftyPercent of Uniswap V3 LPs generate losses.
Liquidity Book solves this issue by presenting variable swap charges.
— The DeFi Investor (@TheDeFinvestor) August 23, 2022
The white-colored paper outlined using Liquidity Book (LB), which introduces variable swap charges to “provide traders with zero or low slippage trades.”