It's certainly good to learn about impermanent loss (IL) before you go sinking tons of money into crypto. But I hear far too much fear about it. Whether you are trying to make gains just investing in projects or through yield farming, the fundamentals remain the same:
- Focus on positions you believe in
- Buy low
- Dollar cost average on dips
- Take out your initial investment ASAP and let the rest ride
- Have a price target exit strategy
If you lose 30% on a farm impermanently, that only matters in certain strategies. Plus, if you're worried about 30% in crypto, you're doing it wrong. Why worry about 30% when you could legitimately be pullin a 30X? Here's my preferred methodology so I don't have to worry about IL, especially in a bull market:
Follow the fundamentals of good investing and turn yield farms into pure profit passive income streams. Worry less about the IL and more about good investing.
Case in point — if you've been in Cake and watched its rise from like $0.50 to now over $2.00, you could have easily created a passive income stream that you never have to look at again except to collect Cake. If you got in at $0.50 and pulled half of your farm out at $1.00, IL becomes a moot point. You're playing with house money, so it doesn't matter if the price of Cake goes to $0.02. You can't lose.
I prefer this strategy because it allows me to wait out bear markets without having to worry. No matter what, I'm compounding. And when the bull hits again, I have more Cake to ride the wave up.
So in a bull market, you can easily get a 2X or 3X on a farming token. If you get this, don't fuckin worry about IL. Why? Because the number of liquidity provider (LP) tokens you have remains the same. No matter what the value of the tokens in the LP, you are receiving the rewards at the same rate. At this point, the APY you get doesn't matter, either, because the APY is contingent upon the value of the token you're getting for rewards.
In other words, your APY can drop by 50% if the value of your rewards token drops by 50%. Doesn't matter as long as you believe in the token. Why? Because the emission rate of your reward hasn't changed. If you got 100 tokens in a day, you're still getting 100 tokens per day for your LPs because your LP token number remains the same. It won't if you try to unwind the farm, so it's best to just leave it in.
When the value of your token goes back up, guess what? You've got more tokens (100 per day) at the old price. Mad profits, IL be damned.
The secret is to pull your initial capital out of the farm ASAP. This means you have to buy low, hopefully when both tokens in the farm are low. If you pull this off, you can end up with an impermanent GAIN on your farm. But unlike what others might tell you, if you're employing my strategy, you want to buy the farm when the shittoken is low. For instance, if you're pairing $SHIT with ETH at a low $SHIT price, you spend less $ETH to pair your $SHIT. As $SHIT goes up, you can eventually begin pulling a few LPs out until you have your initial capital back. At that point, you're golden. Leave the farm in and don't try to realign it. Your LP tokens remain the same, and you can wait on the price of your emissions token to go back up before changing it back to another asset.
The other secret is to completely write off the nominal value of the LP tokens. Just forget about them. They are there only to produce you free emissions, not to be counted in your net worth. If you can pull this off, you can fight the urge to unwind the farm during dips.
Questions? Too bad. I'm not answering anything. Either you got it or you don't!
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YOUR GUIDE TO MAKING MONEY IN CRYPTO STARTS HERE ---> Making Money in Crypto Part 1
Always remember:
Burgerswap Bridge will steal your crypto
Deus.Finance is led by a psychotic wannabe despot
AllianceBlock is a shit project
All algorithmic stablecoins (Basis Cash, Mithril, Empty Set Dollar) are a SCAM
Don’t get your bitcoin from PayPal
Trade on BSC, not Ethereum
Ivan on Tech, Elliotrades and Bitboy are complete liars, and
If you are always losing money trading crypto, read here.
Gems I'm investing in:
