Chainlink helps Bancor V2 rise?

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Source: DeFi Pulse

introduce"Decentralized finance (DeFi) has exploded in recent months, and automated market makers DEX (hereinafter referred to as AMMs) have become an indispensable layer in the emerging DeFi ecosystem. Total liquidity in AMMs was well below $100 million for most of the past year, a figure that has grown to nearly $700 million in a matter of weeks."image description"This growth is truly astounding. However, AMMs still face a number of barriers to widespread adoption - the most serious of which is a unique"。

, this loss is called

impermanence loss

This article begins by reviewing impermanence losses and the costs they impose on liquidity providers. It then explores Bancor V2, a new AMM protocol designed to reduce impermanence losses. If successful, Bancor V2 - scheduled to launch in the next few days - could cause a paradigm shift for AMMs.

Liquidity Regulations: False Promises

AMMs claim to offer token holders a golden opportunity: become liquidity providers by staking tokens they already own, which can be unstaked at any time, while earning transaction fees in the process. Of course, any investor would like to be able to earn a small percentage of interest on their tokens, rather than letting them sit idle. right?

Not so good. In most cases, that promise is a false one -- and, for inexperienced investors, a dangerous one. Beneath the surface of liquidity provision lurks a hidden cost: loss of impermanence."secondary title"Understanding impermanence loss"In order to understand what impermanence loss is and why it occurs, it is necessary to understand an important limitation of existing AMMs. In their current form, most AMMs rely on"constant function

to determine the internal token price. This pattern is good enough for trading. The problem is that there is no way for AMMs to automatically update to reflect external market price changes. this kind

Serious consequences for liquidity providers.

Source: Medium

In both cases, the clear winners are the arbitrageurs. What about the losers? liquidity provider. As shown in the chart below, continuous price volatility prevents liquidity providers from fully realizing the price appreciation of the tokens they bet on, and it exacerbates price depreciation.

In practice, when liquidity providers go to withdraw their tokens, they often encounter an unpleasant surprise: less tokens than they originally staked. This loss is called impermanence loss."impermanence"？

secondary title"How much impermanence loss"impermanence"The term itself is misleading. If the relative price of tokens within an AMM returns to the price at which the liquidity provider started betting, the liquidity provider's loss is indeed"impermanence"of. However, for liquidity providers, full recovery"Often painful permanent loss. Just ask the investors who provided liquidity to Uniswap’s LINK/ETH pool during LINK’s epic bull run.

Source: Bancor Network

existing solutions

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existing solutions

First, since impermanence losses are caused by price fluctuations, liquidity providers can sidestep the problem entirely by staking in stablecoin pools such as Curve’s. But this solution clearly cannot help liquidity providers who wish to gain exposure to free-floating assets."Liquidity Mining"Second, as Haseeb Qureshi points out in an excellent article, AMMs with highly correlated free-floating assets tend to be somewhat less vulnerable to impermanence losses. However, liquidity providers for these AMMs will still suffer from impermanence, assuming token prices do not move in perfect sync. Furthermore, AMMs with highly correlated, free-floating assets represent only a small fraction of AMMs; liquidity providers may still wish to stake tokens in pools of uncorrelated or negatively correlated assets.

Liquidity Mining

Incentives dampen, and sometimes completely offset, the impermanence losses suffered by liquidity providers. But, as Andrew Kang pointed out in an insightful Twitter thread, yield mining is at best a temporary solution, and even for a single, fast-growing coin, maintenance costs are high, Not to mention the AMM protocol as a whole.

If AMMs could eliminate or at least significantly mitigate impermanence losses, their value proposition to liquidity providers would change dramatically.

secondary title"Bancor V2: A Paradigm Shift?"Unlike existing AMMs - as stated above, AMMs are sensitive to market price changes"intelligent"The --Bancor's V2 AMM is

Source: Chain Link

intelligent"Yes, thanks to key integrations with Chainlink oracles. Oracles send updates to Bancor AMMs when the price of a token changes. AMMs adjust accordingly, locking in the new price before arbitrators profit from the difference. This price adjustment is achieved through a dynamic reweighting of the token ratio in the AMM constant function."image description"The adjustment of reserve weights is determined by two additional parameters. (1) Tokens available for withdrawal by liquidity providers"current balance", and (2) the liquidity provider's initial supply of tokens to the AMM"Fixed point balance"current balance"。

Source: Bancor Community Call

return to its"Quota balance"How AMMs transfer current balances"push"push back

To fixed value balance? Since Bancor V2 AMMs allow for liquidity of a single token — another unique feature of the protocol — AMMs must track and balance current balances of TKN and BNT reserves separately. Using dynamic weight adjustments, AMMs set the price of TKN (a non-native token) at a level that induces arbitrageurs to cover TKN deficits and buy TKN surpluses. These incentives will change the current balance of TKN

TKN liquidity providers avoid unstable losses through the arbitrage incentive mechanism generated by dynamic weight readjustment, while BNT liquidity providers are protected by the protocol's basically static fee structure. Although V2 AMMs have dynamic reserve weights, transaction fees are always split equally between TKN and BNT liquidity providers. Therefore, when the dynamic weight of the AMM is adjusted from the 50/50 ratio, there will be an incentive to return to 50/50 parity, because one side of the fund pool will earn half of the transaction fee of the entire fund pool with a lower amount of funds.

Summarize

secondary title"liquid black hole"。

Summarize