IL Protection Over Time

    Impermanent Loss Insurance on THORchain

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    THORchain Impermanent Loss (IL) Insurance is paid to liquidity providers that remove liquidity to make sure that they do not make less than they would have if they had held their assets. This is an innovative way to incentivize investors as IL has caused more investor losses rather than gains as reported in this research on Uniswap v3.

    Naturally, IL is higher when there is high volatility, which can wipe away an investor's profit in a matter of swaps. So with the recent volatility in crypto capital markets, it is expected that insurance paid to protect liquidity providers will go up. Let's prove this theory by looking at IL insurance paid over time; first by day, and then by month.

    The chart above shows the amount of IL insurance paid by the day and we can see that amounts have been low and well below 20k until late September 2021, when amounts broke through the threshold. IL insurance was reduced in March this year but has since been on the rise.

    Let us zoom out and look at the payments by month.

    As you can see there was a steady rise in payments since genesis which eventually peaked at 373.4k USD in January 2022. There was a decline but in recent times, IL insurance payments have bounced back which can be attributed to the recent volatility in crypto capital markets.