How the Crema Single Sided Liquidity Pool protects LP providers from IMPERMANENT Loss
A liquidity pool is a collection of funds that have been locked in a smart contract. One of the underlying technologies of the current DeFi ecosystem is liquidity pools. They are a necessary component of automated market makers (AMM), yield farming, borrow-lend protocols, blockchain gaming, synthetic assets, on-chain insurance, and other applications.
Many decentralized exchanges (DEX) rely on liquidity pools to create markets. Liquidity providers (LP) combine two tokens with equal value in a pool to create a market. In exchange for providing their funds, they receive trading fees from trades that occur in their pool, which are proportional to their share of total liquidity.
The provision of liquidity entails a number of risks, the most serious of which is the risk of temporary loss. Impermanent loss is a value loss when providing liquidity on an AMM versus HODLing the same token.
Simply put, it is the difference between the cost of holding an asset and the cost of using the asset to provide liquidity. Impermanent loss occurs mostly in standard liquidity pools where one pair is more volatile than the other and a liquidity provider is always required to provide both assets in a set ratio.
If a user's Impermanent loss exceeds the fees earned when withdrawing, the user has lost money when compared to simply holding their tokens outside the pool.
The value of an impermanent loss can be significant (including a significant financial loss).
Single-sided liquidity is gaining traction in the DeFi industry as a critical solution to Impermanent loss and other challenges, and it may soon become a global standard.
Crema Finance is a powerful concentrated liquidity protocol built on Solana that allows users to swap, earn, and build with Crema's programmable liquidity network, allowing them to realize the full potential of their assets.
Crema Concentrated Liquidity Market Maker enables liquidity providers to define price ranges, add single-sided liquidity, and do range order trading.
Crema Finance's solutions have already piqued the interest of users, with the platform currently boasting over 2.18M Total Value Locked and 54.53M Cumulative Trading Volume since its inception.
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