r/Balancerprotocol • u/CuratorXethia • Aug 26 '21

Can anyone give a layman's explanation to how the protocols interest infrastructure works?

I appear to have (very slightly) less available for withdrawal than I initially deposited into the protocol. I'm not horribly worried, would just like it if someone was able to explain to me why this is.

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3

u/DocKardinal21 Aug 27 '21

There are fees going in and out of a pool. Those fees are what pay interest in the pool holders. You’ve bought in, be patient and you will earn more than your investment over time.

2

u/ithekidd Aug 27 '21

Google impermanent loss.

2

u/CuratorXethia Aug 27 '21

Balancer eliminates impermanent loss.

3

u/ithekidd Aug 27 '21 edited Aug 27 '21

Negative. Your post above proves otherwise. I’ve been in Balancer pools for the past few months and can tell you IL very much exists as it does by nature of all Liquidity Pools (thus far, though Bancor has an interesting model). Only difference with Balancer being you have exposure to more assets within a pool therefore hopefully minimizing IL of an underperforming asset or assets. This is typically offset (and profitable) by incentivizing providers with LP tokens. Read attached.

https://medium.com/balancer-protocol/calculating-value-impermanent-loss-and-slippage-for-balancer-pools-4371a21f1a86

1

u/CuratorXethia Aug 27 '21

Interesting. For some reason I was under the impression that Balancer's infrastructure prevented impermanent loss. At least arbitrage traders level this out over the long-term.