If you are a liquidity provider, you have probably wondered how to avoid temporary losses while investing your money. While the number of new DEXs is increasing, temporary losses still remain a deterrent factor for potential liquidity providers to invest their liquidity. let’s watch But how can you avoid temporary losses by providing liquidity? algebra,
What is permanent damage?
permanent damage Occurs when you provide liquidity to a liquidity pool and the value of your deposited assets changes compared to the time you deposited them.
The more they change, the higher the risk of temporary loss.
- Temporary loss is temporary until the fee rewards you earn compensation for the loss and/or the value returns to its initial level.
- If you remove your funds from the pool before their value is restored, the temporary loss will be realized and become permanent!
Imagine you provided liquidity to a pool of $1,000 worth of tokens. The estimated APR is 10%. In the ideal scenario, you would have $1,100 at the end of the year.
However, what if the price of the token is halved and you only end up owning $550 worth? In this case, even though you made a profit from the trading fee, your total investment fell.
It turns out that a highly-volatile asset represents a risk factor for liquidity providers. Well, how can you prevent this situation?
Algebra DEX: Minimal to Zero Temporary Loss
With major innovations and latest features, Algebra has reduced the risk of high temporal losses by introducing its dynamic fee model, High-April FarmingAnd Concentrated Liquidity Position,
- dynamic fee model
This innovation determines the customized fee based on the feature instability, trading volumeAnd pool volume. In this way, the right balance between merchants and providers is guaranteed.
- high apr farming
In other words, high-APR farming allows you to earn additional incentives that can complement the fees you earn from trading; Thus protecting you from temporary losses, even if your token loses value over time.
- concentrated liquidity
Our focused liquidity technology allows you to hold your assets at specified price intervals, allowing for higher capital efficiency and deeper liquidity. what does this mean?
- You set a price range within which your assets will provide liquidity.
- If the current price of the asset stays within this range, you get a percentage of the trading fee from the liquidity. If you hit the right price range, your capital efficiency will be high!
- As a liquidity provider, you have the ability and flexibility to freely adjust terms Minimize or even prevent temporary loss Completely.
- High capital efficiency can offset your potential losses.
Let’s imagine that the price of ALGB is $0.15 at the moment. You enter the ALGB/USDC pool and set a precise $0.14–0.16 range.
Overall, if you choose the right price range you will get what you put in + rewards. To minimize temporary losses, expand the threshold limit: the ROI will be lower, but so will the risk of temporary losses! If you have ever provided liquidity on Uniswap V3 or any other DeFi protocol and experienced high temporal losses, harness the power of algebra; Helps you reduce the risk of losing your capital. Scroll through every feature once again and start earning without the fear of losing your investment.