Zircon Finance, an automated market maker (AMM) and decentralized exchange on Moonbeam, announced the launch of a mainnet network to address investors’ challenges related to volatile losses in decentralized finance (DeFi).
A temporary loss refers to a condition in which investors lose assets that they previously dedicated to providing liquidity to a liquidity pool in order to make profits through returns. The mainnet network dubbed Zircon Gamma aims to counter such losses through unilateral liquidity via the Moonriver network, which tranches or shares risks between a volatile cryptocurrency and a stablecoin.
For example, in the case of an ETH/USDC pool, Zircon allows Ether (ETH) to maintain full exposure while providing security through the stablecoin USD Coin (USDC). In addition, the mainnet allows both sides to earn swap fees.
As explained by Zircon, loat liquidity pools like ETH double their gains over regular pools but remain exposed to the risk of volatile loss. However, the AMM’s proprietary async LPing mechanism reduces the risk by at least 90%.
The mechanism does this by incentivizing liquidity pools to replenish lost ETH funded by earned fees. Speaking to Cointelegraph, Andrey Shevchenko, co-founder of Zircon, revealed that his inspiration for creating such a system came from traders’ need for a flexible and permissionless solution, stating:
“Too many people have been burned by teams making fantastic but misleading claims about eliminating or compensating for temporary casualties. In some cases, the mechanism they offer (with dynamic fees) just doesn’t really work.”
Shevchenko acknowledged the obvious error conditions if a token dips to $0, but argued that “Zircon reduces it enough to make fickle losses a non-issue. In addition, we can arm it to create options.”
Compared to existing players protecting against fickle losses, Shevchenko emphasized the numerous failsafe mechanisms that help rebalance liquidity pools. However, he did recommend users do some research when choosing their trading pairs, adding, “It’s an incentive-based economic system that you can expect to work 99% of the time.”
In addition to protecting users from fickle losses, Zircon’s differentiating factor includes providing liquidity directly to stablecoins and cheaper swap fees. “Overall, we will be the cheaper and more liquid option to swap everything outside of the really popular pairs on Uni V3,” Shevchenko concluded.
Related: The liquidity protocol uses stablecoins to avoid fickle loss
A recent whitepaper published by Trader Joe, an avalanche-based DeFi protocol, also claimed to have solved the impermanent loss problem.
/4 Temporary loss
One of the most critical problems of Uniswap V3 is that the fickle loss often exceeds the 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.
— The DeFi Investor (@TheDeFinvestor) August 23, 2022
The whitepaper outlined the use of the Liquidity Book (LB), which introduces variable swap fees to “offer traders trades with little or no slippage.”
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