Proposal: Impermanent Loss Compensation for Liquidity Providers

My proposal is to provide Impermanent Loss Compensation for early liquidity providers on 1inch. This has been used successfully by Thorchain to incentivize longer term liquidity, and it makes sense that early supporters of the platform are insulated from impermanent loss at the earliest stages of a project when the risks are highest.

Background: At the start of the 1inch liquidity mining campaign on 30 Jan, Opium was trading at ~$19. By the end of the first liquidity providing campaign, Opium was trading at ~$8. Meanwhile ETH went from ~$1350 to $1530 over the same time frame. The resulting differential price movement created an impermanent loss for liquidity holders of approximately 30%.

Proposal 1: Institute a retroactive airdrop of Opium tokens into the joint 1inch-Opium reward pool to compensate early LPs for their large impermanent loss. Assuming the average size of the pool was $18mm, this would require an airdrop of $5.4mm worth of Opium. This is a sizable amount of Opium, and it should be dropped under the same withdrawal terms with charity fee as the existing rewards to ensure that the rewards go to long term supporters of the protocol. If that sum proves too expensive, one way to minimize the sum would be to calculate the proportion of the liquidity pool that still has yet to claim, and only drop IL protection into the pool based in the amount sufficient to compensate those who have yet to claim the farming reward.

Proposal 2: Institute an ongoing program of weekly impermanent loss protection for the 1inch and Sushi pools, similar to what is currently being done by Thorchain. By shifting the risk profile of liquidity mining substantially, this would incentivize liquidity on a more permanent basis without the eventual liquidity cliff that comes with triple digit farming rewards. In the long term, liquidity mining rewards could be scaled back to make up for the cost of IL protection. IL protection is likely a better way to incentivize long term liquidity providing, as it allows supporters who believe in the project to maintain their position and collect yield instead of attracting hot money farming flows that leave once the farming rewards are terminated.


I think this part is an acceptable caveat. It would essentially mimic the Dr. Opium mechanism by rewarding the longer term liquidity providers.

I also like the charity fee idea if it could be implemented the way it is now via the same interface. The long term loss protection is actually an effective way to incentivize long term participation in that pool and stabilize pool participation.

What is the next step to vote on such a proposal ?

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Agreed with both points proposed.

I agree with some compensation, being the early LP in 1inch myself. However I don’t see it really doing much as far as demand side of the equation goes. I’m a strong believer of proper brand building, in the end it’s always the customer who decides what he/she is accepting as good value of the product/service.

I have 2 proposals - 1) to take some of that compensation and buy some air time through some widely followed youtuber (never done it’s but it can’t be that expensive right?). Some research about what channel could be most impactful for opium as far as coverage goes should be decided before ofc. We can discuss it here on the forum.

Second proposal - building contest on opium protocol with a realllly hefty awards to incentivize the builder. Not sure what is the right platform to announce these sort of things.

I understand the approach with big players who mainly want to preserve their capital and are happy with 25% apr if they can be sure that the risk is minimal. But I believe opium also needs some product toward more risk averse users where you can take a lot of risk, and be rewarded for it accordingly If you know what you’re doing (isn’t that how most of us got here anyway?:grin::grin: They saw some high apr numbers/potential and they jumped in the boat) . I don’t know exactly what that is, but the building contest would be a great way to find that out I believe.

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Welcome to the opium forum mate!

@tjknova please start a poll in this thread if possible to get some votes and show community interest on promoting this into a formal proposal.

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I especially like high risk products idea!
Why dont we introduce “Opium Turbos” - highly leverage positions for an asset (say ETH).
Basically it is simple: buy turboETH for 100 DAI and get 500 DAI at the end of the week if ETH is up. Lose part or whole amount if ETH is down…

What do you guys think?

We do need more marketing, but now it should be smart marketing, you dont want to compete with ICO-type of projects that are suddenly getting everywhere, you better spend this money to #buidl

:clap: :clap: :clap:


Good idea!

This would be really nice opportunity for opium to attract gambler/highrisk-high-reward type of customers.

could you elaborate more on how the math works out with this kind of product?

one issue I see in dealing with small amounts of $ right now are the eth fees (should get a lot better in some time though)

One idea I have is to make it somehow multiple tier based on some bonding curve. (So that the underlying asset (ULA) has to increase/decrease by at least some %). For example:

  1. 100 DAI buyin - ULA up/down 30%, reward multiplier 5x, otherwise lose all buyin
  2. 250 DAI buyin - ULA up/down 20%, reward multiplier 3.5x, otherwise lose 70% of buyin
  3. 500 DAI buyin - ULA up/down 10%, reward multiplier 2x, otherwise lose 50% of buyin

The numbers I just put there intuitively - ofc the math needs to work out so, that it’s a sustainable model.

With you can check out and calculate the risk