Zircon Finance, an automated market maker (AMM) and a decentralised exchange on Moonbeam, made the announcement for launch of a mainnet network for addressing investors’ challenges with regard to impermanent loss in decentralised finance (DeFi), on the basis of information by Cointelegraph.
According to Cointelegraph, impermanent loss refers to the situation of investors losing assets which they had previously aimed to use for providing liquidity to a liquidity pool for the purpose of earning profits through yields. The mainnet network, called as Zircon Gamma, is expected to counter such losses through usage of single-sided liquidity over the Moonriver network, which enables the division of risks between a volatile cryptocurrency and a stablecoin. In addition, the mainnet permits both sides to earn swap fees.
As per insights from Cointelegraph, Zircon’s explanation stated that liquidity pools such as ETH double their gains over regular pools but carry the peril of impermanent loss. However, the AMM’s in-house AsyncLPing mechanism helps with the risk reduction by close to 90%. The mechanism enables this through incentivisation of liquidity pools to restock lost ETH funded through the earned fees. Andrey Shevchenko, co-founder, Zircon, unveiled that the reason behind such a system is for traders’ to have flexible solutions.
“Too many people got burned by teams making fantastic but misleading claims about removing or compensating impermanent loss. In some cases, the mechanism (involving dynamic fees) they offer just doesn’t really do anything,” Shevchenko added.
Moreover, Cointelegraph noted that Shevchenko acknowledged the failure conditions in case if a token reaches a zero dollar value, but emphasised on how Zircon tries to make an impermanent loss a non-issue. However, he recommended users to conduct their research prior to selection of their trading pairs, with stating that an incentive-based economic ecosystem can be expected to work around 99% of the time.
(With insights from Cointelegraph)