The crew behind the decentralized protocol Crypto Volatility Index (CVI) has launched an impermanent loss (IL) safety answer dubbed “Armadillo,” designated to assist liquidity suppliers (LPs) mitigate losses throughout market fluctuations.
Solving Impermanent Loss Issues
Due to the risky nature of cryptocurrencies, liquidity suppliers are sometimes plagued with impermanent losses when the costs of their crypto belongings change after staking or depositing them in liquidity swimming pools. A research carried out in 2021 confirmed that fifty% of Uniswap V3 LPs lose extra money in comparison with crypto hodlers on account of IL.
The CVI crew intends to make use of Armadillo to resolve the difficulty of impermanent loss by implementing methods that enable LPs to get pleasure from the advantages of offering liquidity whereas hedging towards losses.
“Armadillo will enable liquidity providers to limit their exposure to the volatility of their underlying token deposits in liquidity pools. Given our extensive experience building out risk management solutions like the CVI, ETHVI, volatility tokens, and more,” the crew mentioned.
How it Works
According to a press launch shared with CryptoPotato, Armadillo was designed as an insurance coverage contract. The answer permits liquidity suppliers to buy custom-made protection that matches their related pairs and quantities for a particular interval.
“During the coverage period, the users will be covered from any impermanent losses that occur on the specific asset and across the specified date ranges,” the crew mentioned.
The insurance coverage contract is issued as a non-fungible token (NFT), representing the protection quantity, length, and designated token pairs. The launch additionally famous that customers are refunded in the event that they expertise impermanent loss throughout their protection.
Armadillo works as a cross-chain answer that can be utilized on any decentralized alternate (DEX) or liquidity platform. The IL safety was beforehand launched in beta however is now out there in alpha, with extra options.
The CVI crew famous that the product’s title was derived from the Armadillo animal, including that the answer was designed to stop market manipulation and assaults. The crew claims that the premium paid for the coverage is “fully decoupled,” eliminating counterparty dangers for protected liquidity.
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