Have you ever wondered what impermanent loss is? Have you ever been intrigued when you see amazing APR levels if you join liquidity pools and then add your LP tokens to a farm?
On October 1st, the platform named RobiniaSwap launched and they had some awesome APRs available in the first weeks. Of course, this lead to giant inflation, which caused the token price to drop heavily until it landed and stabilized somewhere between $0.2 and $0.3. In the midst of this, I decided to give the platform a try and I added $500 worth of BNB and $500 worth of $RBS tokens to the liquidity pool on PancakeSwap.
When I entered the pool, one BNB was worth approximately $470 while the price of RBS was $1.4 (or something like that).
What does my investment teach us about impermanent loss?
I entered the pool with 350 RBS tokens (approximately) and 1.2 BNB (approximately). The only problem was that my initial 350 RBS tokens dropped in value from $500 to $80. My initial BNB investment went from $500 to $650.
The problem is that the value should always be stable in the liquidity pool. So, when I left the liquidity pool, I didn't get my original tokens in return. Instead, I received $240 worth of RBS and $240 worth of BNB. My original 350 RBS tokens turned into 1200, while 1.2 BNB turned into 0.35. And that is what impermanent loss is about. If one of the tokens (or both) drops in value, your liquidity investment will always keep tokens in value 50%/50%. As a result, I received much more RBS (which was worth way less), and I lost most of my BNB (which was worth more).
Do you want to see the exact numbers and information about my investment? Check this article: https://www.ipaddressguide.org/my-robiniaswap-1-month-experiment-the-result/
No hard feelings here, by the way. I invested at a very risky time, and I believe that if I had kept my investment for a couple of more months, the RBS price would straighten out, and combined with trading fees, this would have turned into a plus project.