How to solve "impermanent loss"? Bancor V2 details revealed
Editor's Note: This article comes fromBlue Fox Notes (ID: lanhubiji), reprinted by Odaily with authorization.
Blue Fox Notes (ID: lanhubiji)
（Source：Bancor）
Blue Fox Notes (ID: lanhubiji)
, reprinted by Odaily with authorization.
Blue Fox Notes mentioned before that Bancor V2 tried to solve the problem of "impermanent loss", but did not disclose the details. A few days ago, Bancor further disclosed some details, mainly as follows:
It can be seen from the figure that there are two cores: one is that the oracle machine provides the latest price; the other is to update the proportion of the token pool according to the price of the oracle machine, that is, the dynamic pool model.Does Bancor have a chance to overtake Uniswap?》
1. Assume that the initial pool is 10ETH-1000BNT, assuming that the market price of ETH is $100, the price of ETH in the token pool is also $100, the market price of BNT is $1, and the price of the token pool is also $1. That is, assuming that the market prices of ETH and BNT are consistent with the price of the token pool, then the ETH-BNT pool is a token pool with $2,000 liquidity, and there is no room for arbitrage.
2. ETH market price rises. Suppose the ETH market price rises to $120, the ETH token pool price is $100, the BNT market price is $1, and the token pool price is also $1. That is, the market price of ETH has risen by $20, so at this time, there is room for arbitrage. The actual value of the entire liquidity pool is $2,200, not $2,000.
3. In order to prevent losses from liquidity providers, Bancor V2 obtains the price of the oracle and upgrades the proportion of the token pool. How to upgrade? After obtaining the market price provided by the oracle machine, the price of the ETH pool also rises to 120 US dollars. Then, at this time, the token pool value of 10ETH is 1,200 USD, 1,000 BNT is 1,000 USD, and the entire token pool is 2,200 USD. The values converge. After the update, 10ETH accounts for 54.5% of the token pool, while BNT accounts for 44.5%. Through such an adjustment, as a liquidity provider, there will be no "impermanent loss" due to the rise of ETH. Regarding what impermanence loss is, you can refer to the previous article "
Does Bancor have a chance to overtake Uniswap?
Well, this is a relatively rough description. Specifically, what could be the problem?
In this regard, Balancer CEO Fernando put forward a different view: the concept of a dynamic token pool is very interesting, and its core is to achieve the consistency between the price of the token pool and the price of the oracle machine on the chain. However, there may be a problem of delay in the price of the oracle machine . When the market price of ETH rises to $120, this causes traders to immediately take profits and push the price to $120. The oracle price is still lagging at $100. This causes the price to revert to $100, which creates a second opportunity for traders to arbitrage until the oracle provides a price in line with the market. The result of this is that any deviation between the oracle feed price and the real market price will cause a token in the token pool to be consumed. Traditional AMM has no concept of price oracle, it is managed by market perception, so there is no deviation between market price and pool price. So no value can be "drawn" from the pool other than syncing to the new market price. These extracted prices are the so-called "impermanent loss". This is an inherent part of AMM.
All in all, the Bancor V2 token pool only adjusts the proportion of the token pool according to the oracle machine price update; if the token pool price is consistent with the oracle machine, the proportion will not be adjusted; if the average market price of ETH rises to $120, traders will The price of ETH is pushed to $120. When the price of the oracle machine is updated, the price of the token pool of ETH is already $120, and there will be no arbitrage opportunities. In addition, between the second and third steps, certain arbitrage opportunities do exist. However, the price of the oracle machine is updated, resulting in a change in the proportion of the token pool, and the fact that each pool has two pool tokens can prevent impermanent losses.Bancor V2: Introducing an AMM that reduces slippage》《Does Bancor have a chance to overtake Uniswap?》
