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Impermanent Loss Einfach Erkl盲rt auf deutsch [Bitcoin, Uniswap, DeFi, DeFi-Chain] - YouTube
Channel: Crypto Explained
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Impermanent Loss explains
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hello and welcome to my channel Crypto Explained!
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I am really happy that you are there and I assure you that after this video
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you have fully understood what the so-called "impermanent loss" is.
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We will look at the following: First we clarify how the
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price is created on a decentralized exchange, look directly at an example and
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think about how you can avoid such a loss.
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The impermanent loss is one of the most important risks that arise when participating in so-called
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liquidity mining.
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We'll pretend you're just getting into LM and then see
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what can happen.
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At this point I would like to make a disclaimer: The numbers that we will use in the examples
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are very imprecise and probably not up-to-date.
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The calculations are greatly simplified, but the principle becomes clear for you as an investor
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and that is the subject of this video.
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Let's say you would now like to take part in DeFiChain's liquidity mining and you have now
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thought about investing 5 bitcoins,
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for example .
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This is of course applicable to all other pools.
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The ratio of a couple in the DeFi Chain is always 50-50, which means in the end
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you need the equivalent of your 5 BTC, i.e. 200,000 DFI.
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So your stake is 5 BTC and 200,000 DFI.
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So far so good.
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Now let's take a look at what's in the pool.
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The pool is still small and currently there are only 20 BTC and 800,000 DFI in the pool.
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With your investment, there are 25 BTC and 1,000,000 DFI in the pool.
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So you hold a share of 20% in the whole pool.
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Now a couple of hours, days or weeks may go by and out of nowhere and
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for some reason the price of DFIs doubles and you are wondering if you should take
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a few DFIs out of the pool to sell them.
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No sooner said than done, you open your wallet and find out with a shock that
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your number of coins has changed.
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You now have more BTC and less DFI than before and let's see why.
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The moment the price of DFI has risen, the ratio of the
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coins in the pool changes.
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The price on a decentralized exchange is always based on the ratio of the
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coins.
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There are no order books here like on a central exchange!
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However, this adjustment does not happen entirely by itself, someone is responsible for it
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and even if in most cases there are some programs or bots that take care of it,
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we are talking about so-called arbitrage traders.
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Even if the translation of arbitrage is of no help, arbitrage traders are nothing more
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than normal traders who specialize in taking advantage of price fluctuations between different
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trading venues in order to achieve risk-free profits.
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Such traders are not only active in the crypto sector, but everywhere where possible
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and mostly with highly technical support.
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First and foremost, we now want to understand why the ratio in the pool has changed
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at all and why this is also good.
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[As just indicated, the price of a coin on a DEX is not determined by order books,
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but by the ratio of coins in the pool.
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] At the beginning there were 25 BTC and 1,000,000 DFI in the
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pool, which means nothing else than that, for example,
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1,000,000 / 25 = 40,000 DFI / BTC applies.
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So, we're paying 40,000 DFI per bitcoin on the DEX.
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So we now know how the price on a DEX comes about in the first place.
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Now let's look at what exactly happened when the price of DFI doubled
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.
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To understand the whole thing better, we will now
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assume
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the point of view of an arbitrage trader . Trader X observes the prices and finds that you get 20,000 DFI
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per Bitcoin on central exchanges and 40,000 DFI per Bitcoin on DEX.
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He is happy and starts immediately.
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So he opens the DEX and buys 40,000 DFI with 1 BTC there, because the old price
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still prevails on the DEX.
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Then he sends the 40,000 DFI to a central exchange such as
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Bittrex and receives 2 BTC in return!
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He has now doubled his capital risk-free.
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Since he's not stupid, he repeats the game and sends the 2 BTC back to the DEX.
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Now he realizes that with his first trade there are now
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26 BTC and only 960,000 DFI in the pool.
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As we already know, the ratio of the coins on the DEX reflects the price.
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That means that Trader X has to buy for 960,000 DFI / 26 BTC = 36,923 DFI / BTC.
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So the price for DFI has risen, you now get only 36,923 DFI
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for 1 BTC on DEX instead of 40,000 as just now.
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Since this is still worth it, the trader exchanges his 2 BTC from just 2 * 36,923
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= 73,846 DFI.
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He then sells it for 3.7 BTC and repeats the game.
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15:00 He sends the 3.7 BTC to DEX and exchanges
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it for DFI.
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But now, through his previous trades, there are 28 BTC in the pool and only 886,154 DFI in the
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pool.
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So the price is currently at 886154/28 = 31,648.
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He's now buying 117,097.6 DFI with his 3.7 BTC.
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In return, he receives 5.85488 BTC on the exchange.
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He repeats this over and over again and we see his trades as a table:
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25 BTC 1,000,000 DFI -> price 40,000 DFI per BTC
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26 BTC 960,000 DFI -> price 36,923 DFI per BTC
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28 BTC 886154 DFI -> price 32,648 DFI per BTC
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31.7 BTC 769056.4 DFI -> Price 24,260 DFI per BTC The whole
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thing will repeat itself until we receive a price of 20,000 DFI / BTC.
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This is the case when we have around
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34.5 BTC and 701.128DFI in the pool.
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This approximation is very imprecise.
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There are other important factors such as slippage and fees.
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In addition, Trader X would not be the only trader who would conduct arbitrage.
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But let's just assume this: then there are now
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34.5 BTC and 701.128DFI in the pool and before that there were
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25 BTC and 1,000,000 DFI in the pool Let's jump back to the point at which
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you noticed that you had more BTC and have less DFi than before and you had considered
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pulling some DFIs out of the pool to sell them.
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You now pay out and receive 20% from the pool.
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Why 20%?
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At the beginning of your investment, your share was 20% of the total pool size.
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These 20% are now 6.9 BTC and 140,225 DFI instead of 5 BTC and 200,000
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DFI. So the ratio has shifted!
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Let's look at what this means for you in $:
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We previously assumed that BTC was $ 20,000 / BTC and DFI was $ 0.5 / DFI.
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So the stake with 5 BTC and 200,000 DFI was $ 200,000.
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Now we have 6.9 BTC * $ 20,000 = $ 138,000
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140,225 * $ 1 = $ 140,225 So you now have $ 278,225 instead of $ 200,000.
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Nice!
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But unfortunately you might have missed one thing: If you hadn't participated in the LM and just kept
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your coins, you would have 5 BTC and 200,000 DFI which are now
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worth $ 100,000 + $ 200,000 = $ 300,000.
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So you have now lost almost $ 21,775 by participating in the LM.
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How did that happen now?
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We noticed beforehand that the ratio in the pool has changed because
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Trader Y has carried out so-called arbitrage trading.
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Seen figuratively, the pool is robbed of a little of its value, which trader
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Y wins for himself and this loss is also your loss, since you own 20% of the pool
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! Let's summarize the whole thing
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again in an understandable way: The fact that the price on a DEX is created by
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the ratio of the coins and there are no order books on a DEX creates
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the possibility that other traders can carry out arbitrage trading.
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As a result, the pool loses value, especially when the price makes
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huge leaps.
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The ratio shifts and you get a different amount of coins used
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than the one you used.
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Arbitrage traders are nevertheless essential for a DEX, because otherwise the problem
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would very often be that one cannot trade at the current price.
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I really hope the explanation was understandable.
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Don't get demotivated if you haven't understood it yet and feel free
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to write me your questions in the comments.
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Before we end the video, let's take a look at how you can avoid IL.
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1.
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Impermanent Loss, as the name suggests, is impermanent.
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In this example, it could have been that DFI fell back to the original price
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a few days later .
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If you would then have to pay out, you would not have suffered an impermanent loss as the ratio of
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the pool would have leveled off in your favor again.
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2.
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You should always make sure that the price on the DEX is just balanced
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before you invest.
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Otherwise you run the risk that shortly after you invest the pool will be arbitrage
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and the ratio will shift.
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3.
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Of course you get something back for your risk.
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At the current returns in the case of DFI (400% APY), the returns will far exceed
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the IL .
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Don't panic and take coins out of the LM, stay cool and enjoy the
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rewards.
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4.
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Risks like the IL are one of my favorites.
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I can see exactly what is happening here and can simply work out what is going on
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!
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Predictable risks are much more pleasant than unpredictable ones, no matter how high they are!
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There are some calculators and graphics on the Internet for the IL that will help you assess your risk.
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For example, you can think of the following: If I expect BTC to remain stable at around $ 20,000
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and DFI to rise less than 500%, I have to reckon with a maximum of 25% IL.
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If I get APY at 400%, that's almost 33% per month.
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So I have to take part in the LM for at least a month to cover the risk for this scenario.
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So you can think through many different scenarios.
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For now, this should be enough for this video.
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I would like to thank you very much if you have watched this video up to here and
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hope that you were able to take something with you.
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On this channel you will find much more detailed explanatory videos and tutorials
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about crypto currencies, their uses and risks in the future .
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I would be incredibly happy about a subscription and I wish you continued fun
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and success with investing and using cryptocurrencies.
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