DeFi Update #4: What Happens When the Underlying Cryptos Make Big Price Moves

can you order Pregabalin online Time for another update. We have LOTS to talk about this week as there have been big moves in our underlying 3 cryptocurrencies

  • SWINGBY
  • CAKE
  • BNB

http://tucsonazhomejp.com/packages/ In fact, there is now a risk of impermanent loss, which is something we will discuss later.

Background

Godean Here is the original post and investment. It's $500 to try to earn $100 per month.

http://commervanspares.co.uk/shop/uncategorised/fuel-pump-repair-kit-glass-bowl/ This week is week 7 so only 1 short of 2 months. You know from DeFi update 3 that I did NOT reach my goal in the first month but I decided to keep the investment for another month. After all, $94 instead of $100 was pretty close. I would be back on track if by next week, I have earned $200 on my $500 investment.

My return, since both pools pay in CAKE is, is 7.70 CAKE, which is worth $185.72 today at a price of $24.10. My USD return is 185.25/500 or 37% total return or 5.3% weekly return.

Token Prices

When we started, we had 2 liquidity pools where we invested: SWINGBY-BNB pool and the CAKE-BNB pool. So we have 3 tokens whose prices we are watching.

My starting prices were:

  • SWINGBY 72c
  • CAKE 13.56
  • BNB 257.94

And now the prices are 

  • SWINGBY 57c
  • CAKE 24.10
  • BNB 551.24

You may notice that both CAKE and BNB have absolutely exploded in price, which looks like we are now in a confirmed ALT season (time to invest in the growth of other non-BTC tokens). CAKE is up almost 100% and BNB is over 100% during this experiment.

The gains are so big there is now a risk of impermanent loss. So let's get into what that is

What is Impermanent Loss?

Binance has a good explanation of what impermanent loss is. The basis of this loss is that when we provide liquidity to a pool as I've done in these 2 pools, it's equal USD amounts of CAKE and BNB for that pool and SWINGBY and BNB for that pool. I own a fixed % of these pools.

This is the important part. I have to take a fixed % of the pool out when I want to exit my liquidity pool. Impermanent loss is the difference between putting my assets in the pool versus just holding the base asset, in this case, BNB. If I just bought and HODL BNB my return would be 113%. In ONLY 7 WEEKS. It's crazy. That's what my 1.93 BNB would be worth, or $1,063.89.

However.....

I would not be exposed to CAKE if I had not put my money into this pool so my $185 in CAKE offsets some of this loss, which is really an opportunity cost.

Right now, my impermanent loss, and this is an inexact calculation, is a $563 gain I would have in BNB minus the gain I DO have in CAKE Of $185 or $378. I will be talking more about this next week as I think my SWINGBY pool could be more negatively affected than my CAKE pool.

There's a good chance if prices stay where they are that next week when I finish 2 months investing on PancakeSwap that I will have reached by $100 per month goal. Let's see how it goes next week.

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

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