DeFi’s dirty little secret is spilling out into the open. Impermanent loss affects nearly every DeFi yield farmer who has ever staked their tokens in a decentralized exchange like Uniswap or Sushiswap, and it’s a similar story playing out in DEXs across every major blockchain.
You want to make money on the tokens you own, so you stake the tokens inside a liquidity pool like Uniswap, Sushiswap, Pancakeswap or any food-themed swap. Your money facilitates trading and generates fees from traders.
Your tokens may go up or down in price, and that volatility encourages trading which generates fees. But it’s that same volatility that can incur massive value loss in your holdings. Because as your tokens move in price, they can be automatically sold at a discount or bought at an inflated price.
The result is you can lose money instead of earning. It’s called “Impermanent Loss”, but more often than not it is permanent. We know it’s an awkward name, but welcome to crypto.
IL.wtf, a new tool built by APY.Vision and Bancor, allows users to see how much IL they’ve suffered when providing liquidity, and which pools have burned them the most. Released this week, IL.wtf tracks historic and current liquidity positions in Uniswap V2, Sushiswap, Balancer V1 and V2, Kyber and 1inch to calculate how much IL you have suffered over time.
IL.wtf calculates IL by comparing the value of your tokens in a liquidity pool (including fees collected) to the value of those tokens if you had simply held them in your wallet. Unsurprisingly, the data has made for grim reading for most LPs so far, including well-known Twitter influencers…