Impermanent Loss Inevitable for 99% of Token Pairs Long Term?

**TLDR; Why does it feel like 99% of token pairs will suffer impermanent loss long term, if so, then why DeFi stake or provide liquidity at all in the first place if the best way is just to HODL and not suffer impermanent loss long term?**


Hi all, I’ve came to a realization that Impermanent Loss is inevitable long term unless you are:

* Holding a stable-coin pair => which has very little APY as most pools are maxed out, so not that attractive.
* Holding any crypto pair that goes up or down at the same rate => which is impossible long term.
* Holding any crypto pair that stays at the same price => which is impossible long term.

So it seems like 99% of all token pairs are going to suffer impermanent loss and we are just better off holding the coin long term rather than staking it on a platform, I just don’t understand what’s the point of DeFi staking and providing liquidity if there wasn’t any Bonus APY or incentive then? Bonus APY and incentives are not sustainable long term, then what’s the point of DeFi staking and providing liquidity long term if we know that this industry will go 3-5x in market cap in the next few years and 99% of token pairs will just suffer impermanent loss if staked that long.

I understand I might have missed a few blind spots, which is why I wanted to check this subreddit to ask for help with the understand, hope that’s alright guys!

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16 thoughts on “Impermanent Loss Inevitable for 99% of Token Pairs Long Term?”

  1. Saying 99% pair of tokens have impermanent loss is wrong. All Stablecoin pairs have no impermanent loss. There’s a lot of stablecoin pairs Most Curve pools are only Stablecoin pools.

    You also have tokens that move along so reduces impermanent loss to a minimum like BTC/ETH. Since impermanent loss is low on this pair the fees and rewards you earn are way higher than the impermanent loss, so you are earning while providing liquidity.

    The only pairs where impermanent loss is the highest is Stablecoin + Token pairs. But even there if the fees and rewards are higher than the loss because of high volume or low liquidity you can definitely make way more than the IL.

  2. Technically speaking 100% of non stable coins will experience some, I.e., non-zero loss. However that is what the payouts are for, to offset any losses. Assuming you play your cards right you can limit those losses to less than 1% by cashing out at the right time.
    Personally IL wasn’t the issue I had with pools but rather opportunity cost. Your total value may not shift much but your number of tokens can fluctuate dramatically.

  3. You don’t stay in a liquidity pool forever, you stay in it while the market is flat or bearish if the fees justify it, but you should leave the LP once the market goes bullish.

    Edit: I use LPs to DCA in/out, and to farm when we’re sideways. It doesn’t make sense to provide liquidity in a bullish market unless you want to DCA out.

  4. You’re thinking of it theoretically without actually crunching any numbers. A crypto/crypto pair will never go up and down (as measured in USD value) at the same rate, but to suffer significant IL, there needs to be a very drastic deviation in value – specifically about 500% for 25% IL – and it needs to stay there. This is even more pronounced if you use an 80/20 pair instead of a 50/50.

    If you think that type of volatility is likely, then yes, do not LP. LP is literally shorting volatility between the two. But also you shouldn’t be holding the two assets 50/50, you should only be holding the one that deviates upwards 500%. So the whole measurement of IL is really pretty useless.

  5. This is not true in some cases. Having LPs in Stablecoins do not suffer from IL. Platforms that allow users to take profit from holding an LP is where the next phase of crypto will move towards. I wrote a post in here about a project that allows users to take profit from their more risky LPs. See link below.


    It can be a great tool to have in your defi bag and could help users reduce the risk of IL on risky assets to a certain degree.

  6. Liquidity providing is worthwhile only when you guess the movement of the market. Should you think it’ll crab the whole week, lp earnings are better than holding, in terms of risk/reward ratio

  7. I do stablecoin LP farming in trading fees and protocol token rewards on tezos for 10-15% APY (so very little IL)

    And I do Xtz/usd LP too, started from 3$, now it’s at 1.5$ but I know everntually it will go back around 3$ so I will just pull the LP out around this time. And I have farmed for 40-80% APY in the meantime

    If you know what you do, I think risks are manageable

  8. My MATIC/ETH pair has been pretty stable for over a year, through the recent ATH and winter.

    I see those moving together long term.

    But we’ll see.

  9. Up the ante with concentrated liquidity–it will get you rekt fast if you don’t know what’s up. Protocols are springing yp though to automate LP positions and optimize yield. Plus you can leverage on stablecoin LP pairs like 50x with Arrakis (LP) and MakerDAO (borrow DAI) on Ethereum. If you don’t want to get rekt by fees next bull taking your shiz out, there’s Kamino (LP) and Hubble on Solana.

    Market making is full of risk, but the profit is in the volume of trades over time + rewards, so for leveraging stables for the long-term, not so bad

  10. I only use Osmosis Dex to provide liquidity because there are external incentives to do so. These days there are also single sided liquidity pools that only require just one asset.

    When you said DeFi staking, there’s no impermanent loss with staking instead you earn more from it. I have been staking ATOM, JUNO, EVMOS and many other tokens for a long time, started staking OCEAN yesterday after their veOCEAN launch and I haven’t noticed any IL.

    In summary, I’d say it’s safer to stake than provide liquidity if you don’t want to be exposed to IL.


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