In this article, I’ll discuss three methods already being used in the DeFi world to address the issue of impermanent loss.
Weighted Pools ⚖️
Weighted liquidity pools allow for a customizable asset ratio instead of the standard 50/50 split. For example: 80/20, 70/30, etc.
This means you can allocate more weight to the less volatile token in the pool, thereby reducing losses caused by impermanent loss.
Weighted pools are available on Balancer.
Compensation for Impermanent Loss 💵
Compensation involves full or partial reimbursement in the event of a loss caused by impermanent loss.
For example, on STON.fi, the STON/USDT pool has introduced protection against impermanent loss, offering compensation of up to 5.72%, equivalent to the token STON doubling or halving in value.
Farming on STON.fi
Farming offers the opportunity to earn additional rewards by providing liquidity. Farming can also be considered a way to offset losses caused by token price drops or impermanent loss.
Learn more about farming on STON.fi.
Concentrated Liquidity 🎯
Concentrated liquidity pools allow you to select a price range within which you are willing to provide liquidity. If the asset moves outside your chosen price range, your liquidity becomes inactive, and you are no longer exposed to impermanent loss.
Concentrated liquidity pools are available on Uniswap.
