Avalanche-based decentralized finance (DeFi) protocol Dealer Joe claims it might have discovered a option to mitigate one in every of DeFi’s greatest weaknesses — impermanent loss. 

In a newly released white paper on Tuesday referred to as the JOE v2 Liquidity E-book, authored by Quant builders and researchers Adam Sturges, TraderWaWa, Hanzo and software program engineer Louis MeMyself, the builders outlined using Liquidity E-book (LB) with an extra variable payment swap function to “present merchants with zero or low slippage trades.”

Dealer Joe stated the brand new technique will mitigate impermanent loss “suffered by so many liquidity suppliers (LPs) on different DEXs throughout market turbulence.”

Impermanent loss, which has been seen as one in every of DeFi’s biggest weaknesses, occurs when the worth of token adjustments after one deposits it in a liquidity pool-based automated market maker as a part of yield farming — a sort of funding through which one lends tokens to earn rewards (not the identical as staking).

It’s additionally one of many causes that institutional buyers have been treading with warning within the DeFi area, in line with digital-asset administration agency IDEG’s chief funding officer Markus Thielen.

Talking to Cointelegraph, Thielen stated that his agency and different institutional buyers “have been much less engaged with automated market makers (AMMs) as the chance of impermanent loss is just too excessive,” including:

“I have to admit that Dealer Joe’s v2 whitepaper presents a novel concept and liquidity suppliers have generated 30bps for facilitating trades, which is a beautiful return when future development is unsure for the business. We need to see how a lot liquidity v2 is now attracting and the way Dealer Joe’s TVL will enhance.”

Thielen added that with a view to get a aggressive edge within the digital asset sector, buyers must search for various investments with good fundamentals, relatively than simply counting on blue-chip belongings:

“As a crypto fund, we will’t simply depend on ETH and BTC, we would like different layer ones and alt cash to thrive, so we applaud the Dealer Joe crew for preserving creating and different AMM on their toes.”

In keeping with the paper, Dealer Joe’s Liquidity E-book (LB) is a sort of liquidity pool (LP) that arranges the liquidity of an asset pair into worth bins, that are exchanged at a relentless worth.

The LB introduces a brand new variable swap payment, which is designed to guard merchants from impermanent loss by compensating LPs within the occasion of utmost market volatility in order that the liquidity might be extra effectively managed in response to sudden worth actions.

Dealer Joe’s LB may also provide zero to low slippage trades, which is able to serve to supply merchants higher shopping for charges. 

If correctly executed, this will signify a major breakthrough in DeFi. A current research confirmed that over 50% of Uniswap v3 LPs lose cash in instances of market turbulence as a result of impermanent loss exceeded the swap charges.

Thorchain is one other DeFi protocol offering impermanent loss safety for LP deposits after the primary 100 days (with partial safety earlier than that time). 

The Dealer Joe protocol dubs itself as a “one-stop decentralized buying and selling platform” that’s constructed on good contract platform Avalanche.

Associated: Dealer Joe (JOE) makes a 110% V-shaped restoration after Rocket Joe launch

The protocol is at the moment the most important decentralized change (DEX) on Avalanche, with $191 million in whole worth locked (TVL) on the protocol.

The DeFi protocol permits customers to commerce, farm, lend and stake amongst different issues.

Dealer Joe’s token, JOE, noticed its worth briefly spike following the white paper launch and is trading at $0.28 on the time of writing, although it’s nonetheless down 94.5% from its all-time-high, in line with CoinMarketCap.