Avalanche finds a way to mitigate the risk of DeFi’s fickle loss

Avalanche finds a way to mitigate the risk of DeFi’s fickle loss

The Avalanche-based DeFi protocol is expected to allow traders to trade with little or no slippage

By Shashank Bhardwaj

Image: Shutterstock

Avalanche-focused decentralized finance (DeFi) protocol Trader Joe claims to have found a way to address one of the shortcomings of decentralized finance (DeFi). This is about the impermanent loss. A whitepaper on the subject was published on Tuesday. It is known as the JOE v2 Liquidity Book. It was co-written by quant developers Adam Sturges, TraderWaWa, Hanzo and software developer Louis MeMyself.

As stated in the white paper, “Liquidity Book (LB) is a novel design for structuring the liquidity of a decentralized exchange. It allows liquidity to be discretized into fixed price tiers, improving slippage and swap pricing. Unlike previous concentrated liquidity protocols, LB avoids high volatility losses for liquidity providers. LB liquidity structures allow for further composability and we are keen to explore new use cases with the DeFi community.”

This initiative, according to Trader Joe, will mitigate the temporary loss “that so many Liquidity Providers (LPs) on other DEXs suffered during the market turmoil.” One of DeFi’s most serious flaws has been inconsistent loss. This occurs when the price of a token fluctuates after a deposit has been made into a liquidity pool oriented market maker as part of yield farming. This is also one of the reasons why institutional investors have been cautious in the DeFi space.

The Liquidity Book (LB) at Trader Joe’s is a type of Liquidity Pool (LP). Its goal is to ensure the liquidity of an asset pair in price classes that are exchanged at a constant price. The developers described how to use Liquidity Book (LB) with a variable fee swap feature. This feature will ‘enable traders to trade with little or no slippage’. This allows traders to access better buying rates. This follows a recent study that found that more than half of Uniswap v3 LPs lose money during market turbulence as volatile losses exceed swap fees. As anonymous DeFi analyst The DeFi Investor analyzed on Twitter, “One of Uniswap V3’s most critical issues is that fickle loss often exceeds swap fees. A study conducted by @Bancor team showed that 50% of Uniswap V3 LPs lose money. Liquidity Book solves this problem by introducing variable swap fees.” Markus Thielen, chief investment officer of digital asset management firm IDEG, believes that institutional investors are less engaged with automated market makers (AMMs) because the risk of a temporary loss is too high.In a public statement, he said: “I have to admit that Trader Joe’s v2 whitepaper offers a novel idea and liquidity providers have generated 30 basis points for facilitating trading, which represents an attractive return when Future growth for the industry is uncertain. We want to see how much Liquidity v2 attracts now and how Trader Joe’s TVL will improve.” The author is the founder of yMedia. He ventured into crypto in 2013 and is an ETH maximalist. Twitter: @bhardwajshash

• avalanche
• Trader Joe
• Decentralized funding
• DeFi

Learn Crypto Trading, Yield Farms, Income strategies and more at CrytoAnswers
https://nov.link/cryptoanswers