I remember you posting about Liquidity pools and how they help reduce volatility. You even talked about "impermanent gains" on the downside. I've done more research today on the math behind liquidity pools (because of damn CUB) and apparently you were wrong.
Price difference (up or down) causes losses compared to a HOLD position with both tokens.
So if you provide liquidity to cub-busd and cub goes down, you lose both the value that cub lost + the added impermanent loss.
https://peakd.com/hive-167922/@edicted/impermanent-loss-and-gamblers-syndrome
I explained the entire concept in detail.
The content is dense and perhaps misinterpreted.
Impermanent loss rounds to zero when looking at the CUB inflation bounties.
Less risk is incurred on LPs.
It's a safer gamble.
Less volatility in both directions; betting against the market.
You are ignoring the money gained by farming the LP.
Definitely agree with that. I am also in that pool.
Here is the part I (or you?) misunderstand. Less volatility on the upside I agree, because impermanent loss reduces the gains. But there is more volatility on the downside. Because as I said, impermanent loss is added on top of the capital loss.
If cub goes down 50%, you lose 50% of your cubs' value and you get an impermanent loss of around 5.5% compared to your busd cub holdings if you were not providing liquidity.
If you weren't providing liquidity half of your money wouldn't be in BUSD to begin with.
That's what the math fails to understand.
99% of people are going to shove 100% into CUB they aren't going to leave 50% stable.
Ohh I see. Was not assuming you would keep 100% in CUB. Makes sense now