Bancor v2.1’s impermanent loss protection mechanism can increase LP’s revenue by 3 times.
Written by: LeftOfCenter
Bancor, a decentralized transaction protocol, launched the AAVE unilateral asset pledge liquidity mining pool on December 27. Staking Aave in this pool will not only get the transaction fees generated by the pool, but also get BNT token rewards . Bancor Mining will be released at a rate of 10,000 to 20,000 BNT per week . At present, the AAVE assets pledged in this liquidity pool have reached the full upper limit of 400,000 US dollars . If there is more pledge demand, BNT tokens must be deposited or the limit increased through governance.
According to Bancor’s official statement, the impermanent loss protection mechanism enabled by the newly launched v2.1 version can provide LP with progressive impermanent loss protection . Under the same other conditions, LP’s revenue can be increased by 3 times . Bancor will also provide up to more than 1 million BNT tokens as an impermanent loss insurance fund.
This article will briefly introduce Bancor’s unilateral asset pledge mining liquidity pool and impermanent loss insurance mechanism, and teach you how to unilaterally pledge Aave on Bancor to earn income and obtain the mining reward token BNT.
Unilateral asset liquidity pool
The Bancor v2.1 version adds a new unilateral asset pledge mining liquidity pool, which means that users can participate in unilateral liquidity mining of supported assets without using ETH as one of the trading pairs to provide liquidity.
Taking AAVE as an example, liquidity providers can pledge in the AAVE liquidity pool on bancor.network to earn additional income while maintaining 100% exposure to AAVE assets, including:
- AAVE transaction fees generated in the pool
- Liquidity mining reward BNT
- Impermanent loss insurance
This is a newly launched liquid mining pool on the Bancor v2.1 platform. Once the value of Aave tokens reaches 400,000 USD, BNT token rewards can be activated, which will be 10,000 to 20,000 BNT per week. Perform mining release.
Impermanent loss insurance
In general, the AMM mechanism will inevitably produce impermanent losses and affect the income of LP. Taking the AAVE/ETH pool on Uniswap as an example, the figure below shows the impermanent loss of the pool from November 5 to December 23, 2020.
In order to encourage LPs to participate in mobile staking, Bancor opened the impermanent loss protection mechanism in the v2.1 version to provide LP with progressive lossless protection. Under the same other conditions, Bancor’s impermanent loss protection can prevent the impact of the negative return period, and can increase the LP’s income to three times the former.
So, how does Bancor’s impermanent loss insurance work?
In fact, Bancor eliminates the risk of impermanence by transferring the risk of impermanent loss of the liquidity provider to the Bancor agreement and adding an official insurance fund.
Specifically, Bancor will use the protocol’s native token BNT as the counterparty asset of each asset pool. Whenever an LP provides liquidity to a specific pool, the agreement will provide the equivalent value of BNT tokens on the other side of the pool. In this way, the Bancor protocol and the liquidity provider of a specific pool jointly invest in BNT tokens, that is, the fees incurred in the transaction pair pool will be used to pay for the impermanent loss costs during the LP pledge period.
If the cost of non-destructive insurance is lower than the cost earned by the agreement to jointly invest in BNT, then when the LP withdraws liquidity, these costs will eventually be destroyed together with the co-invested BNT tokens, and the remaining destruction costs will be used to reduce The total supply of BNT ultimately increases the value of BNT tokens and BNT holders benefit.
Of course, there may also be cases where the transaction fees generated by the asset pool cannot make up for the impermanent losses. At this time, part of the insurance can be paid with equivalent BNT .
Bancor v2.1’s progressive impermanence loss protection mechanism will accumulate over time, increasing at a rate of 1% per day. The impermanence loss insurance has a 30-day lock-up period , which means that if the liquidity provider decides to be within 30 days of the pledge period Withdrawal of the position will bear the cost of impermanent losses.
After the pool accumulates for 100 days, the insurance share of the pool reaches 100%. At this time, comprehensive protection of impermanent losses is activated. This means that a pledger of AAVE tokens on Bancor, when the pledge time reaches 100 days, and the AAVE tokens rise at this time, they can still get the equivalent of 100 AAVE. In addition, they can also get transaction fee commission and Mining rewards BNT tokens.
Teach you how to pledge AAVE
The following are the steps to teach you how to stake AAVE tokens on Bancor
1. Click to enter the bancor.network related page
Select the AAVE pool in the STAKE IN POOL option, and enter the amount of AAVE you want to pledge.
It is worth noting that the initial quota of the AAVE pool is US$400,000. Once the total amount of pledge exceeds US$400,000, the available limit will show 0. At this time, you need to manually deposit BNT tokens or increase the pool’s limit through governance. Both AAVE and BNT are protected from impermanence.
2. Governance <br/>After depositing AAVE or BNT tokens, it means that you have opened a new protected position, which can be viewed in the “Protection” tab pool.
On this page, you can track the total value of your pledged assets, view the income and impermanent loss insurance of each asset position , manage liquidity and the upcoming claim function , and re-pledge the BNT tokens you claim Liquidity pool.
(The BNT liquidity mining reward plan will be launched on the front end of bancor.network in January 2021).
Noun operation explanation:
- Initial Stake = The number of token assets deposited
- Protected assets = transaction fees + the number of tokens that can be withdrawn under 100% protection
- Claimable = the number of tokens that can be withdrawn
- Fees = total fees earned
- Return on investment (ROI) = value of protected assets / value of initial pledged assets
- APR = protected annualized rate of return (eg 7d = expenses incurred in 7 days / working capital * 365)
- Current Coverage = Accumulated impermanent loss insurance ratio (up to 100% protection)
3. Analytical Pool <br/>You can view the analysis data of each pool on the homepage of the data sheet, and you can view the annualized rate of return (APR) and the annualized rate of return (APR) of each liquidity pool under protection in the “Rewards” column. 24 hours of transaction fee income (Fees).
Source link: blog.bancor.network
