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News | June 29, 2021, 16:38 PM | The content is supplied by a Guest author

Cryptocurrencies are getting more popular, and many people think about investing some money in them. It is possible to mine crypto coins if you have enough resources; otherwise, you can join a . When it comes to investing money in crypto coins, it is essential to mind possible risks. In particular, traders need to have an understanding of what impermanent loss is. Read this article to learn about that. 

Important Notions to Know 

Before we dig deeper, it is essential to understand a few important terms. The first one is automated market makers (AMMs). Thanks to them, it is possible to trade coins automatically, without the permission of the owner. The thing is that when trades are made on traditional markets, sellers publish their offers, specifying the value of coins available for sale at a certain price. If a buyer thinks that the offer is interesting, one makes a deal. 

Demand for cryptocurrencies can change in different directions. When it is too high, and there are not enough offers from sellers, deals cannot be made. This is where we get to another important term ­ liquidity pools. They help facilitate trades on decentralized exchanges. Liquidity providers (LPs) add their crypto coins to such pools. This increases the liquidity of the protocol. Providers get fees if the trade occurs. 

Everyone can become a market maker. All you need is to get some crypto coins that you can add to a liquidity pool. The fee is determined by the protocol. It can be 0.3% or less to attract more liquidity providers. Everything seems to be clear; however, there may be pitfalls. In particular, it is an impermanent loss. So, let’s find out what it is. 

Impermanent Loss

If you add your coins to a liquidity , you should be ready to face impermanent loss. This situation occurs if the price of assets changes. The greater the difference in the price, the larger the impermanent loss will be. Such a loss is called “impermanent” since it is possible to get back to the initial price over time. In this case, the provider will experience no losses and will get the fee back in full.

How to Prevent Impermanent Loss

Unfortunately, no way allows you to prevent impermanent loss. However, it is possible to do something about that. In particular, you can try to decrease your losses. Check out a few simple recommendations on that. 

  • Use Stablecoin Pairs. Everyone who wishes to avoid impermanent loss should consider providing liquidity in stablecoin pairs. That is because the price for such coins is relatively stable. Generally, using such coins is less risky. However, they are not the best option for getting a great income.

  • Avoid using pairs with high volatility. It is possible to check the history of crypto coins to see how quickly and drastically their price changed over time. Picking crypto coins with lower volatility would be a good choice.

  • Analyze the market. High volatility is typical for all cryptocurrency markets; so, you can expect that the price may change from time to time. However, as a liquidity provider, monitor the market to be ready to withdraw your crypto coins when the right time comes. 

Conclusion

Becoming a liquidity provider is not a difficult thing. Simply purchase some coins and then add them to the pool. Follow simple recommendations provided above to decrease the risk of impermanent loss. For a start, do not add lots of funds to earn some fee. You should start with a small amount of crypto money, which will allow understanding how impermanent loss looks like, how quickly the price can get back, and what can be done to avoid unpleasant consequences. 

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Naabiae Nenu-B is a Medical Health Student and an SEO Specialist dedicated to flushing the web off fake news and scam scandals. He aims at being "Africa's Best Leak and Review Blogger" and that's the unwavering stand of Xycinews Media.

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‘Be Patient- Bitcoin Price To Recover’ Says A Popular Analyst

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The global market capitalization for the past couple of days is experiencing an extreme drain. Most of teh crypto assets are registering a consecutive 5 red daily candles in a row. The huge selling pressure accumulated on the Bitcoin price has compelled it to bottom below $38,000. By trending very close to the support levels around $37,000, the fear of BTC price revisiting levels around $34,000 hovers. 

Despite the bearish sentiments surrounds the assets, yet it is believed that the price will recover very soon. A popular analyst Alan Santana, suggests his followers to patiently wait until the price flips the bears. He also said that some people are already giving up Bitcoin, falling into the trap of ‘Panic Selling’. And also asked his followers not to join them, rather wait until the next pump.

Also Read: Dogecoin Price Feared To Continue With A Bearish Trend, Is $0.2 At Stake?

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The price seems to be following the path led by the analyst as it bounced significantly on visiting the support zone at $37,978. With a significant bounce, the price could surge close to $40,000 or above. However, yet the chances of forming lower lows still hover the rally. And in such a case, the price could even visit the lower support at $35,700 and rebound. 

However, $35,700 are among the strong support levels and if in case, the Bitcoin price fails to sustain, then a plunge below $34,000 may be imminent. But considering the indicators, the RSI has already bounced back and MACD showcases ease in the selling volume. And hence considering the factors a bounce above $40,000 may be on the way for BTC price.

Also Read: Cardano(ADA) Price Spikes As Bitcoin & Ethereum Yet To Manage The Trembled Situation!

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