How much money can you lose on Yield Farming?

A real case analysis.

How much money can you lose on Yield Farming?

You can not only earn money on Yield Farming, but also lose your money. This happens due to impermanent losses. Let's analyze the real case: 29.06.2021 we placed 2500 WTON and 0.05 WBTC in the WTON - WBTC liquidity pool at tonswap.io.

Рисунок1

When we added liquidity to the pool, the price of TON Crystal was $0.75 and Bitcoin traded at $34,642.

At the moment of writing the article, TON has fallen to $0.4 - Bitcoin, in turn, has grown to $47,647.

The difference between the value of assets at the time of adding liquidity and their value today is approximately 300%. That's quite a lot.

Let’s open the impermanent loss calculator and calculate how much we will lose if we record a loss right now.

3

As can be seen on the screenshot, the impermanent losses are 10.26%. The indicator is counted in dollars relative to how much money in dollars we would have had if we simply left assets on our wallets and did not provide liquidity to the pool.

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Now we will calculate how many percent in dollars we have earned to date.

Рисунок2

In a month and a half, we got 946 WTON. That's $378 at the current rate. If we just kept our assets to ourselves, today they would cost $3,380. The yield in dollars against this amount is 11.18%.

Yes, we are in the black, but this can be called "did not lose" rather than "earned." As you can see, providing liquidity to a pool is a risky financial instrument.

What should we do?

The beauty of impermanent losses is that they are impermanent. While the money is in the pool, the losses are not fixed, and can change both less and more. If Bitcoin falls in price or the tone rises, permanent losses will decrease. We expect to catch the moment when the% of permanent losses will be ~ 3 and withdraw money at that moment. Money can be left in the pool liquidity even after the end of the Yield Farming program.Thank you for your attention! Enter into our Telegram chat @gramkit and join the discussion!

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By GramKit team
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