• New pricing function to generate impermanent gain is available
• Liquidity providers can enjoy rising asset value without interest and governance token rewards
A solution to remove impermanent loss (IL) and reduce slippage has been presented recently.
Until now, people have overlooked that IL is caused by the nominal price.
Automated market makers (AMMs) have used two types of trading prices: real trading price and nominal price.
Professor Hyoung Joong Kim of Korea University, who filed the patent recently, announced, "I have found a pricing function to eliminate IL and control impermanent gain (IG)."
IL has been called the ‘silent killer’ in the decentralized finance industry.
Engineers utilizing AMMs based on liquidity pools (LPs) have tried to remove IL and failed. Liquidity providers wanted LPs with no IL. On the other hand, traders preferred LPs with small slippage.
Recently, Professor Kim filed a patent and disseminate a paper for a method that could solve this problem all at once.
He explained " I found a solution to remove IL and reduce slippage simply by using a single price where the real trading price and the nominal price are the same" and "I proved mathematically that the new price never incurs IL."
Moreover, he showed that LPs with IG can be created by combining the real trading price and the nominal price.
Bancor issued and withdrew the flawed IL protection scheme in 2022.
In other words, the biggest issue in the industry has been the elimination of IL.
In 2022, Professor Kim published a paper showing that there are LPs in which IL and IG regions coexist.
Needless to say, liquidity providers and traders will migrate to LPs with no IL and small slippage.
Existing liquidity providers had to accept asset value loss even if they received interest and governance token rewards because of IL. However, the new pricing function makes the asset value of liquidity providers go up even without rewards due to IG.
The paper of professor Hyung Joong Kim
