Suffered from IL? Try iGain
3 minutes to explain.
Wojak is an ETH believer and a long-term Diamond Hand. He won’t sell any single piece of ETH in his portfolio, even if it’s the end of the world today. Nevertheless, he also hopes that his ETH can play the time value and generate more profits for him during the simple holding process. Fortunately, we’re now in the DeFi liquidity carnival, and we will never lack those kinds of opportunities.
Suppose that there’s a DEX called PingSwap and it’s currently undergoing liquidity mining; you’re able to receive up to 300% APR in $PingPing from liquidity rewards by providing liquidity in ETH/DAI pool. After carefully assessing the risks of PingSwap, Wojak thinks that it’s an excellent opportunity for not getting REKT and decides to participate in liquidity mining to acquire liquidity rewards and transaction fees. However, he never expected his ETH is now at risk.
What are the risks?
For those long-term bullish holders, they don’t pay attention to the short-term price fluctuation. Therefore, it seems appropriate for them to allocate their idle fund to provide liquidity. However, they will suffer the impermanent loss, an additional loss that will inevitably occur no matter whether the price rises or falls.
The reason behind it is because those liquidity providers need to play the roles of both the buy and sell side’s counterparty. If the market follows its rational characteristic, people will use their DAI to buy ETH on PingSwap while ETH rises; meanwhile, Wojak being the counterparty of the buy-side, will be forced to sell ETH and receive DAI. Though the transaction fees and mining rewards can cover the loss, the risk still causes Wojak insomnia.
How much capital loss could IL cause?
Let us do a simple backtest with historical data from June 15th, 2020 to July 15th, 2021, and observe how much IL you will suffer if you invest ETH/USD in a 50/50 pool:
The back-testing result told us that IL is comparably volatile and unexpected. In extreme market conditions, an additional loss of 5% to 8% may occur regardless of the ups and downs.
Though the transaction fee income and mining rewards seem considerable, they all take a long time to accumulate, while the loss caused by IL is immediate.
Initially, Wojak expected a 44% APY return in half a year, but after three weeks, he suffered a huge IL caused by the plummet of ETH price. He suffered additional losses for the entire position due to the price fluctuations when the transaction fees and mining revenues were too late to accumulate.
Uncertainty scares investors and makes the mining revenue even unpredictable.
Fortunately, every uncertainty in the world can be hedged by “insurance.” As an option platform based on IL, iGain provides you with a hedging tool that allows you to hedge the volatility risk of IL with a fixed premium. By doing so, Wojak can be a happy farmer, harvesting transaction fees and mining rewards without worrying about the sudden storm.
How to hedge our risks by using iGain?
There’re Long token and Short token in iGain, which represent long and short IL respectively.
You must purchase Long tokens to hedge the risks; 1 Long token can hedge the IL of a $10 position(take ten times leverage as an example, please check the description of the whitepaper). Therefore, if Wojak holds LP tokens equivalent to $10,000, 1,000 Long tokens need to be purchased. The total cost is the premium, which is the price to hedge against IL fluctuations. No matter what the price changes afterward, you can get back the corresponding compensation according to the size of the IL on the expiry date.
For example, if Wojak can buy 1,000 Long tokens at an average price of 0.15 DAI, the total cost is 15 DAI, equivalent to spending 1.5% of the position size on insurance. Therefore, as long as IL does not exceed -10% at the time of settlement, full claims can be obtained based on the size of IL, and the expected return at this time becomes:
With iGain, Wojak no longer needs to worry about IL caused by price fluctuations and can safely enjoy mining and continue to earn transaction fees and mining rewards.
If you want to fall asleep at night while mining, like Wojak, I highly recommend you learn from Wojak and buy Long tokens at iGain immediately!
Here to buy: https://igain.finance/
Step 1. Choose the pair you’re providing liquidity
Step 2. Each option has a different expiry date and beginning price, choose the one closest to your needs.
Step 3. Buy Long token
“Holding 1 Long token can offset the IL of 10 USD worth position.”
(with 10x leverage, see whitepaper.)
So if you have a 1000 USD worth position, you need 100 Long token to hedge the risk of impermanent loss.
Three things to check before buying:
It’s time for settlement; you can redeem your DAI back with the settlement price of “Long” token.
- Beginning Price:
It’s the initial price for calculating IL, the closer to the price you open your position (providing liquidity), the better the hedging effect.
- The total amount for buying Long token:
It’s the option premium, the cost you need to pay for hedging against IL.
If you think the premium and the expiration date are acceptable, click “BUY”, have a good sleep, and wait for redemption.
iGain is now launched!
Want to know more about iGain? Check out Gitbook Here!