Why you should provide liquidity to moons. The pros and cons. Plus a but about impermanent loss
Many people are scared or unsure about liquidity providing. Admittedly, it is a daunting task for many new players. So here is a list of pros and cons about providing liquidity for moons, and some information about impermanent loss.
Pros:
- Help the moon ecosystem. More liquidty means less sudden volatility and prices jumps
- Get high returns. The current APR for moon liquidity is around 50%. This is amazing, considering moons are pretty well established.
- Less loss. If moons crash, you will not be as exposed. Your losses will be dampened by the pool and the other pair in the pool (ETH for the main pool).
Cons:
- You need to sell some of your moons to buy ETH to provide into the pool ;-(
- Losses are dampened, but so are profits. If moons explode, you will suffer impermanent loss.
A bit about impermanant loss:
It is NOT you loosing any money, it is rather you loosing potential money. If moons were to do a massive gain, you would not get the full gain as part of the pool includes ETH. Effectivly your profits would be dampened.
Some complain about this, but it works the other way too. If moons fall, you will be more protected. It works both ways.
Let me know if I missed anything here
submitted by /u/Proud-Ad-9993
[link] [comments]