Smaller Divergence Loss
Last updated
Last updated
In traditional AMMs such as Uniswap, Sushiswap, etc, the volatility of price changes can severely diminish the returns for liquidity providers, causing a significant DL(Divergence Loss, often referred to as 'Impermanent Loss' by other DEXes) for LPs. To explain in simpler terms: you make less profit when the token price hikes, your loss is enlarged when token price drops due to Divergence Loss in traditional 2 sided AMMs
There is still divergence loss in OT only when the price of the token grows, there is 0 divergence loss when token price drops and OSD rebalance involves, plus single token liquidity provision increases capital efficiency and lowers overall divergence loss as a result. For select pool LPs, providing liquidity to OT won't enlarge your loss when token price drops.
DL = (ValuePool - ValueHODL)/ValueHODL * 100%
ValuePool = Value of your portfolio added to the pool at current price
ValueHodl = Value of your original portfolio at current price(Assuming you've always held it without adding to liquidity pools).
DL is the difference that providing liquidity to the pool makes to your portfolio value. In above examples, divergence loss is smaller when ETH price moves upwards, there is 0 divergence loss when ETH price drops.
ETH liquidity providers also get a share of perpetual trading fees and funding fees for positions opened using ETH as margin.
