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Impermanent Loss Protection
Impermanent Loss Protection (ILP)
IL, in short, is when one of your assets appreciates or depreciates relative to the other asset, it opens up an arbitrary opportunity for others to profit from because they are incentivised to equal the pools.
ILP guarantees that you will ALWAYS be better of providing liquidity with your portfolio rather than just hodling RUNE and ASSET in your wallet.
You are putting your vacant assets to work, so you'll be rewarded in due course!
ILP is paid out when you withdraw your deposit from the liquidity pool. If the impermanent loss is greater than the revenue you have earned from providing liquidity (from fees and incentives) then you will be subsidised the difference.
i.e if you earn enough from fees and incentives to cover your impermanent loss then this revenue will be used to subsidise your protection. If it doesn’t then THORChain will subsidise your IL.
ILP does NOT protect you from both assets depreciating! This is loss, as this would occur if you were just holding the assets regardless.
Liquidity Providers will receive linear IL protection over the course of 100 days. Essentially this means you are receiving an additional 1% protection for every day that you provide liquidity.
49 days provided = 49% IL protection,
100 days = 100% IL protection.
After 100 days+, your pool will be fully protected until you withdraw from it!
THORChain believes that the revenue from LP’ing will consistently exceed impermanent loss so it will be rare for THORChain to subsidise your loss as the pools will generate enough revenue to cover it.
All deposits will be covered as if they are symmetrical deposits.
IL Protection is applied to the asymmetrical deposits after it has been re-balanced into a symmetrical deposit.
Let say you have already provided liquidity, if you top up your LP with an additional deposit it would RESET your overall IL Protection to the date of the new deposit. The IL Protection will be tracked from the most recent deposit and every time you add a new deposit the days of IL protection will restart for your whole pool.
So in order to get 100% ILP, you will have to wait 100 days from your most recent deposit.
If your deposit transaction takes a while to process, AKA if the chain of the asset you are providing (such as BTC or ETH) is congested, you may suffer IL whilst your asset transaction is pending. This is because the deposit can only be protected when it has been confirmed and added to the pool. This also applies for pending liquidity pools that have not been granted as an active pool, as your assets are in a pending pool that is “inactive”.
In the case of Partial withdraws — i.e. taking out a percentage (but not all) of your pool. This will not reset the ILP of your pool.
Last modified 4mo ago
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