I read the article No more Impermanent Loss? by @hetty-rowan and I'm quite curious on why DODO can do it.
So I made a quick look on DODO to figure it out.
1. Where does impermanent loss come from?
In AMM, to join a Liquidity Pool, you need to put 2 original tokens having same $ amount and create the LP token.
If I call LP token $ value = X and $ value of 2 original tokens = Y
Then impermanent loss = Y-X
For example: BNB has price 300USDT now. So I use 1BNB and 300USDT to create the BNB-USDT LP.
The below table shows the impermanent loss when the BNB change.
So in my opinion, creating LP token is the root of impermanent loss
2. Why is there NO impermanent loss in DODOex?
It's easy, no LP token, no impermanent loss.
In DODO, you don't need to create LP token to join the Liquidity Pool.
You just need to add original token to the Liquidity Pool.
There are 2 options for you to choose:
- Single token: you can add only 1 token in the pool.
As the below pool, it's OK for you to put either BUSD/USDT in the pool. Each token has the different APY
- Both tokens
You need to add both tokens in the pool with defined ratio.
One APY for both tokens
P/S: It's my personal study. If you have another point, please share it in comment and discuss.