Avalanche-based decentralized finance (DeFi) protocol Trader Joe claims it might have discovered a method to mitigate certainly one of DeFi’s greatest weaknesses — impermanent loss.
Inside a recently released white paper on Tuesday known as the JOE v2 Liquidity Book, created by Quant developers and researchers Adam Sturges, TraderWaWa, Hanzo and software engineer Louis MeMyself, the developers outlined using Liquidity Book (LB) by having an additional variable fee swap feature to “provide traders with zero or low slippage trades.”
/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
Trader Joe stated the brand new strategy will mitigate impermanent loss “suffered by a lot of liquidity providers (LPs) on other DEXs during market turbulence.”
Impermanent loss, which has been seen certainly one of DeFi’s finest weaknesses, happens once the cost of token changes after one deposits it inside a liquidity pool-based automated market maker included in yield farming — a kind of purchase of which lends tokens to earn rewards (totally different from staking).
It is also a primary reason that institutional investors happen to be treading carefully within the DeFi space, based on digital-asset management firm IDEG’s chief investment officer Markus Thielen.
Talking with Cointelegraph, Thielen stated that his firm along with other institutional investors “have been less engaged with automated market makers (AMMs) as the chance of impermanent loss is simply too high,” adding:
“I must admit that Trader Joe’s v2 whitepaper provides a novel idea and liquidity providers have generated 30bps for facilitating trades, that is a beautiful return when future growth is uncertain for that industry. You want to observe how much liquidity v2 has become attracting and just how Trader Joe’s TVL will improve.”
Thielen added that to get an aggressive edge within the digital asset sector, investors may need to look for alternative investments with higher fundamentals, as opposed to just counting on blue-nick assets:
“As a crypto fund, we can’t just depend on ETH and BTC, we would like other layer ones and alt coins to thrive, therefore we applaud the Trader Joe team to keep developing along with other AMM alert.”
Based on the paper, Trader Joe’s Liquidity Book (LB) is a kind of liquidity pool (LP) that arranges the liquidity of the asset pair into cost bins, that are exchanged in a constant cost.
The LB introduces a brand new variable swap fee, which is made to safeguard traders from impermanent loss by paying LPs in case of extreme market volatility so the liquidity could be more proficiently managed as a result of sudden cost movements.
Trader Joe’s LB may also offer zero to low slippage trades, that will actually offer traders better buying rates.
If correctly performed, this might represent a substantial breakthrough in DeFi. Research conducted recently demonstrated that 50 plusPercent of Uniswap v3 LPs generate losses in occasions of market turbulence because impermanent loss exceeded the swap charges.
Waiting for is finally over….
Presenting: Liquidity Book
A next gen AMM protocol that’s highly efficient, flexible and designed for #DeFihttps://t.co/6l2FoaJ0xo
— Trader Joe New AMM Soon (@traderjoe_xyz) August 22, 2022
Thorchain is yet another DeFi protocol supplying impermanent loss protection for LP deposits following the first 100 days (with partial protection before that time).
The Trader Joe protocol dubs itself like a “one-stop decentralized buying and selling platform” that’s built on smart contract platform Avalanche.
Related: Trader Joe (JOE) constitutes a 110% V-formed recovery after Rocket Joe launch
The protocol is presently the biggest decentralized exchange (DEX) on Avalanche, with $191 million as a whole value locked (TVL) around the protocol.
The DeFi protocol enables users to trade, farm, lend and stake amongst other things.
Trader Joe’s token, JOE, saw its cost briefly spike following a white-colored paper release and it is buying and selling at $.28 during the time of writing, though it’s still lower 94.5% from the all-time-high, based on CoinMarketCap.
