The loss of BNT impermanent loss protection is even larger than the loss of market price fluctuation
Recently, bancor as the pioneer of AMM and impermanent loss protection has been in huge trouble with huge deficits over $40 million at its peak due to hostile market conditions. As we all know normal impermanent loss is just only 20% even with 80% price down, which is why the author said that the impermanence loss protection of bancor exceeds the impermanence loss itself. If you are interested, you can refer to the previous analysis article.
BNT impermanent loss protection will pay much more than impermanent loss itself
In the previous articles, we analyzed the impermanent loss of uniswap V2 and the calculation formula of BNT impermanent…
But some people want to know which is bigger for the loss of impermanent loss protection and market price fluctuations? We know that the volatility loss of the market is ML(%)=P0/Pn-1, that is, we need to compare the sizes of the following two formulas:
wherein P0 is the initial price and Pn is the current price.
As can be seen from the figure below, when Pn/P0<0.3, the loss of impermanent loss protection will exceed the loss of price fluctuations. And the loss of impermanent loss protection is as high as 250% which is far exceeding the decreasing of BNT price just only 85% from April 3 to July 2. Therefore, the loss of BNT impermanent loss protection is not only higher than impermanent loss itself, but also would even exceed the decline in market prices. Under extreme conditions, the hyperinflation of BNT will increase exponentially, and you may lose all your capital.