“No risk, no Ferrari 😂. Sometimes, the road to greatness requires you to take calculated risks—just make sure you can afford the lesson if the gamble doesn’t pay off.”
If you want to become a serious Liquidity Provider, understanding these two concepts is not https://t.co/35y246rJJN this thread.
Share it with someone learning DeFi
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Good news: LP fees can potentially offset Impermanent Loss.That’s why experienced LPs don’t just ask:
“What’s the APY?”They also ask:
“How much IL am I taking, and how does this strategy manage it?”
Simple way to remember:REBALANCING = Your tokens change inside the pool
IMPERMANENT LOSS = The potential value difference caused by that change (vs just holding)
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What is Rebalancing?Rebalancing is the automatic change in the amount of each token inside the pool as people trade. ETH price up → people buy ETH → pool loses ETH, gains USDC
ETH price down → people sell ETH → pool gains ETH, loses USDCNo button to click.
Example:
You provide $4,000 to an ETH/USDC pool:
• $2,000 ETH
• $2,000 USDCETH price rises a lot.
Traders buy ETH from the pool → the pool automatically gives you less ETH and more USDC.Even with trading fees, your position can be worth less than just holding token
Two concepts explain why: What is Impermanent Loss?Impermanent Loss (IL) is the potential loss in value when the prices of tokens in your liquidity pool change — compared to simply holding those tokens in your wallet.
PROVIDING LIQUIDITY IN DEFI?
You NEED to understand these 2 terms You’ve heard of Liquidity Pools, LP Fees & Yield Farming…
But many beginners miss this:You can earn fees and STILL end up with less value than if you just held your tokens.
You DON’T necessarily need to trade crypto to make money from crypto. 👀
DeFi has opened multiple ways to put your capital to work and potentially earn passive income.
Here are 5 major DeFi strategies you should understand:
💧 Liquidity Providing
🌾 Yield Farming
🥩 Staking
Crypto shouldn't have to feel like gambling every day.
Instead of jumping from one token to another, learn how to provide liquidity and potentially earn from the activity happening inside the market.
Still relying only on buying and selling crypto?
Explore another side of Web3.
Learn how Automated Liquidity Provision works, how swap fees are generated, and how to set up your position.