Blinded by the thought of mad gains with liquidity providing, I took the plunge today with anchor’s ANC-UST liquidity pair. 107% apr!?! Screw steady stablecoins gains, wen Lambo instead.

I’m no wizard when it comes to understanding most of this stuff, but you’re essentially providing liquidity so people can exchange their tokens when you do this. You get a part of the exchange fee as a reward, but there’s this tricky little thing called IL (impermanent loss) that we hear about. You lose money when the price of one of your coins moves in price. After using an online calculator and thinking IL wasn’t that bad, I put $10,000 into it. Lambo time.

At first, I looked away for a few minutes. I already earned about $0.25 in rewards. Some quick math and I calculated I would earn about $20 a day! I knew some IL would happen, but figured the gainz would outweigh the loss. A short nap later and I was at $2 in rewards, but upon looking closer I had lost about $20 already. What?

Apparently this impermanent loss is no joke if you don’t know what you’re doing. Price movement of the anchor token by less than 1% to the downside was getting me wrecked quickly. I was gonna keep an eye on it and decide after dinner.

Fast forward through dinner and the price of the token was down by less than 2¢ since I got in, and I was out about $50 at this point. I didn’t know what I was doing and it was time to pull out before I lost more. Between fees and IL I lost over $70 in the span of 3 hours and made $3.

That’s about it. I’m gonna keep my portfolio as part traditional crypto part stablecoins for now, as I clearly need to understand more if i’m ever gonna try liquidity providing again. I don’t recommend liquidity providing to noobs, so definitely dyor if it’s something you’re interested in.

TLDR; Impermanent loss bad. Don’t do liquidity providing if you’re not sure what you’re doing. Lost $70+ in 3 hours blinded by the thought of gainz.