What is IL and how to avoid it?

IL (Impermanent Losses) has always been a pressing issue in the world of DeFi, as any DEX user aiming to earn APR from liquidity pools might encounter it.

What causes IL?

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When you start storing tokens in a liquidity pool and a price difference arises between the two tokens in that pool, IL occurs. This means it would have been better to simply hold those tokens in your wallet. For example, if token A rises by 15% while token B drops by 5%, IL emerges. In other words, when providing liquidity to a pool, you want the token volume to remain in the same position as it was initially. You want the tokens to stay put.

How to avoid IL: Method 1

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On STONfi, the largest DEX on the $TON blockchain, a solution has been found. There’s a STON/USDT liquidity pool with an IL protection feature. How does it work? Every month, compensation equal to the amount of IL is sent to wallets. This allows losses to be covered even if a token’s price changes by up to 50%. By the way, this pool also has active farming, boosting its APR to 19%. Since we’re talking about farming, let’s smoothly transition to the second method.

How to avoid IL: Method 2

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Here on STONfi, there are many liquidity pools with farming. Farming is another unique feature on this DEX, where liquidity providers receive additional token rewards for providing liquidity to a pool. These rewards are independent of the pool’s base APR - they’re a fixed amount that works even if trading volumes in the pool suddenly drop. These rewards can serve as compensation for IL, effectively offsetting them.

Selection of pools with farming:

• AMORE/TON: 130% APR

• JETTON/USDT: 46% APR

• STON/USDT: 19% APR + IL Protection