DeFi Education: Understanding Impermanent Loss (IL) Before Yield Farming on STON.fi
If you're looking to farm high APYs on STON.fi or any DEX, you must first understand the main risk: Impermanent Loss (IL).
What is Impermanent Loss?
IL is the difference in value between simply holding your two crypto assets (e.g., $STON and $TON) versus depositing them in a Liquidity Pool (LP).
It happens when the price of one token in your LP pair diverges significantly from the other. Arbitrage bots rebalance the pool, leaving you with more of the token that depreciated and less of the token that appreciated.
IL is NOT a realized loss until you withdraw your assets.
The Farming Strategy:
Your goal when farming on STON.fi is to ensure the high APY rewards you earn from trading fees and incentives exceed the potential Impermanent Loss. This is why careful pair selection and tracking are critical for successful yield farming.
Final Thought (DYOR): Always use tools (like third-party calculators) and analyze volatility before committing to a farm. High APY often comes with higher risk of IL.
What is your highest-risk farm? Share your best strategy for mitigating IL below! 👇
