Question:
You provide 10 Ether and 35,000 DAI to a liquidity pool. With this contribution to the liquidity pool, you provide 10% of the liquidity offered by the pool. One month later, the liquidity pool has earned 0.5 Ether in transaction fees and the price of Ether has increased by 150%. Assuming that your share of the liquidity pool stayed constant over the past month, what is your net profit (in Ether) from providing liquidity?
Author: timothy NtambalaAnswer:
-Old price for 1 Ether= 3500 DAI, new price 1 Ether= 8750 DAI -In liquidity pool, ratio adjusts to 6325 ETH and 55340 DAI, because of the constant product function. The value of 55340 DAI in ETH is 6325 ETH thus the total value of your assets in pool is equal to 12.65 -If you had not provided your assets to the pool, you would still have 10 ETH and 35000 DAI. The value of 35000 DAI would now be 4 ETH, thus the total value of your assets would be 14 -Impermanent loss=((12.65-14)/14)-1= -9,65% or -1.35 ETH (=14 ETH* -9,65%) -Fees earned 0,5 ETH* 10% = 0,05 ETH -Net profit in ETH= -1,35+ 0,05 ETH= -1,3 ETH
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