The team behind the decentralized protocol CryptoVolatilityIndex (CVI) has designated a permanent loss (IL) protection called “Armadillo” to help liquidity providers (LPs) mitigate losses during market fluctuations. Launched the solution.
Solving the problem of permanent loss
Due to the volatile nature of cryptocurrencies, liquidity providers often suffer permanent losses when the price of crypto assets changes after betting or depositing them in a liquidity pool. A 2021 study found that 50% of Uniswap V3 LPs lose more money due to IL compared to Cryptohodler.
The CVI team will use Armadillo to solve the permanent loss problem by implementing a strategy that allows LPs to enjoy the benefits of providing liquidity while hedging losses.
“Armagiro enables liquidity providers to limit their exposure to the volatility of underlying token deposits within the liquidity pool. Based on their extensive experience building risk management solutions such as CVI, ETHVI and volatility tokens. “The team said.
How to use
According to a press release shared with CryptoPotato, Armadillo was designed as an insurance policy. This solution allows liquidity providers to purchase customized coverage that matches relevant pairs and amounts for a particular time period.
“During the compensation period, users will be compensated for permanent losses incurred over a specified date range on a particular asset,” the team said.
Insurance contracts are issued as non-fungible tokens (NFTs) that represent the amount of compensation, the duration, and the specified token pair. This release also mentions that users will be refunded in the event of a permanent loss during the coverage period.
Armadillo acts as a cross-chain solution for use on decentralized exchanges (DEX) or liquidity platforms. IL protection was previously released in beta, but is now available in alpha and has more features.
The CVI team pointed out that the product name comes from the Armadillo animal, adding that the solution is designed to prevent market manipulation and attacks. The team claims that the premiums paid to insurance policies are “completely separated”, eliminating counterparty risk to protected liquidity.
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