80/20 Pools

Here we will examine the same circumstance as shown in the 50/50 Pools example to compare what effect a change in pool weights can have on a liquidity provider's investment.

COMP WETH 80/20

To emphasize the weighting of 80 / 20 as opposed to 50/50 we will observe impermanent loss under the COMP favoring pool conditions to display the benefits of uneven pool weightings. We will in turn hold 1 WETH @ $2000.00 each and 32 COMP @ $250.00 each. ($8000 in COMP and $2000 in WETH).

Our gains will then be determined by the invariant ratio. This can be used for our token balances are well.

Here we can consider the USD values to be the same in the numerator and denominator therefore not needed to determine the ratio between the two.

While impermanent loss is still applicable in this scenario in comparison to the 50/50 pool the losses are nearly cut in half (a factor of 0.5825 more precisely). When dealing with very large investments these small amounts can make a large difference in value and ultimately weighting will protect or expose investors from impermanent loss depending on their choices. However if prices return to their initial state or follow the same price change at a certain point the “losses” will revert to zero regardless of weighting.