Impermanent loss

Technical Discussion
1

I have been providing liquidity to several pools for several weeks now.
I try to monitor diligently the current position I have in each pool. I believe I also understand the concept of impermanent loss. That being said, I just noticed that after prices moved significantly on one of the pairs I am yield farming on, I have less of each token I initially put in.
My understanding is that I would have had more of one (the now cheaper one) and less of the other (the now more expensive one), in such a manner that I would lose slightly in terms of market value compared to what it would have been worth if I had kept the exact same initial amount of each token.
I do not understand why I would now have less of each token. Anyone has an explanation?

1 Like
2

Price fluctuations will result in you receiving more of the less desired asset and less of the more desired asset, never more of both or less of both. I would double-check your initial transaction to confirm what you deposited into the LP (and at roughly what price) and then compare to what your current liquidity is.

3

Thank you @theodorkx .That is my understanding as well. I have the exact amounts I initially put in, and I am 100% sure I now have less of both tokens

4

I suggest you open a ticket on Discord (see: #support-tickets) with txn IDs and screenshots where available. AMM DEXs all work roughly the same so because what you’re describing doesn’t exactly make sense, I think you need someone to look at your individual case. I doubt you’re comfortable sharing txn IDs on the forum…

(Most) liquidity pools require you add equal value of each side of the pair to the pool. If you are depositing into a Token A/Token B pool, where the current exchange rate is 10 Token A : 1 Token B, then you will need 10,000 Token A if you want to deposit 1,000 Token B.

When you make this deposit you are issued LP tokens which, for the sake of simplicity, is 10,000 * 1,000 = 10,000,000. Regardless of future price action, the number of LP tokens you have does not change. However, as the price changes, the ratio of A/B will change and is what causes you to receive more of one token vs. the other. The famous constant-product formula is X * Y = K. With K being held constant, X & Y must be inversely related to one another.

If in the future the new exchange rate is 5 Token A : 1 Token B. You will expect to have less of Token A and more of Token B. Doing the math, with your 10,000,000 LP tokens you would now have roughly 7,071 Token A & 1,414 Token B.

1 Like
5

Thanks! We have the same understanding of how it should work.
I tried the Discord server but unfortunately I gave up after being in the ‘verify’ status forever and trying to get approved for a while :frowning:

6

What’s your username? I’ll ask them to whitelist you.

7

Thank you so much. It is Produc555

8

Hey pal… I spoke with someone on the Minswap Discord and your username doesn’t show up anywhere. Are you trying to join using one of the official invite links? See their website https://minswap.org/ and scroll to the bottom where you will find: Minswap Community

I suggest trying to rejoin and let us know what the issue is exactly.

Also, are you using the official Minswap DEX? https://app.minswap.org/ and not a scam DEX?

9

hahahaha, yes. But I may have a problem with Discord. First time I ever tried to use it is for Minswap… Can they try TheMinter#9616 ?

10

Should be verified now with TheMinter. Good luck.

11

Thank you so so much. It worked.
I will log a ticket today

12

Hi
Did you get a resolution from your ticket. I have had the same issue of token reduction of both pairs

13

Unfortunately I did not put a ticket on Discord. By the time I got accepted on the Discord forum, the situation had disappeared. And unfortunately I did not take a screenshot when I should have :frowning: