Article
Version 1
Preserved in Portico This version is not peer-reviewed
Minimizing Impermanent Loss in Asset-Pair Balancer Pools
Version 1
: Received: 16 October 2023 / Approved: 16 October 2023 / Online: 16 October 2023 (10:03:46 CEST)
How to cite: Pattanaik, N. Minimizing Impermanent Loss in Asset-Pair Balancer Pools. Preprints 2023, 2023100959. https://doi.org/10.20944/preprints202310.0959.v1 Pattanaik, N. Minimizing Impermanent Loss in Asset-Pair Balancer Pools. Preprints 2023, 2023100959. https://doi.org/10.20944/preprints202310.0959.v1
Abstract
Liquidity providers for asset-pair pools with constant value distri- bution, such as Balancer pools, experience some impermanent loss whenever there is price divergence in the tokens’ fiat values. In this paper, we model this impermanent loss for geometric mean invariant pools by deriving a function of two parameters. We analyze our function graphically, showing that unevenly distributed pools with large weighting disparities best mitigate the risk of impermanent loss. We conclude by providing a general protocol for liquidity providers to choose a suitable pool based on their risk tolerance and profit goals.
Keywords
Impermanent Loss; Liquidity Pools; Geometric Mean Market Makers; Optimization; DeFi
Subject
Computer Science and Mathematics, Other
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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