Previously, providing liquidity to automated market maker (AMM) projects in DeFi has been a manual and somewhat tedious process. You source the required amount of tokens for your desired pair, approve token contracts, pay gas fees to deposit, and then if you’re looking to farm further yields you might go and stake your new liquidity provider (LP) tokens, which takes yet another transaction.
You go through all these steps only to endure the risk of impermanent loss (IL) while you serve as an LP. Now, though, it is possible to provide liquidity and earn DeFi yields simply and without the risk of IL. That’s because Impermax, a decentralized marketplace for borrowing and lending LP tokens, is offering a game-changing new way to participate in LPing called Indirect Liquidity Providing.
A new way to LP in DeFi
Indirect Liquidity Providing, a novel way to participate in DeFi liquidity markets, involves earning yield by lending assets to other LP token holders.
In the Impermax system this works through the protocol’s lending pools, which use LP tokens like ETH-DAI Uniswap V2 LP tokens as collateral. These pools only allow borrowing and lending around a given pool’s token pair, such as ETH and/or DAI if you’re borrowing against ETH-DAI UNI-V2 tokens.
Accordingly, DeFi users can now supply a single token to an Impermax lending pool to earn yields indirectly through an AMM, all while facing essentially no threat of impermanent loss. This is in stark contrast to the IL risk users take on when they directly serve as LPs!
In this way, we can understand Impermax as an Indirect Liquidity market. Users lend their assets to yield farmers, who then convert these assets into further LP tokens in order to boost their own yields. These yield farmers take on all the risk of impermanent loss while paying out a portion of their yields to pay back their loans from Impermax lenders.
Yield farming made simple
A key advantage of the Indirect Liquidity Providing system is that it offers lenders an easy, simplistic avenue for yield farming. This is because Impermax’s lending markets do away with having to go through multiple steps like acquiring LP tokens and thereafter staking them in order to farm.
Instead, lending through Impermax offers a casual, one-step, staking-like process for yield farming: you deposit a token into your lending pool of choice, and voila, you’re earning yield and can claim it any time. That’s about as simple as it gets when it comes to farming opportunities in DeFi, so these farms also minimize the need for transactions, which can really add up gas-wise with other traditional yield farms!
DeFi beginners want entry-level yield farms, and DeFi veterans enjoy simple passive earning opportunities, so Indirect Liquidity Providing has a little something for everyone. This will ensure Impermax will continue to have an important role to play in DeFi, as there’s big demand for simple yield farming solutions while many AMMs are becoming increasingly complex, like Uniswap V3.
Good for DeFi
To compete with traditional finance, DeFi will need to continue being a liquidity blackhole and continue attracting in more money. More money equals more efficiency, and more efficiency means better options for users.
As such, Impermax’s Indirect Liquidity Providing innovation represents a benefit for all of DeFi, insofar as this new lending style makes it easier to provide liquidity to AMMs and can thus help these AMMs grow faster than they would have otherwise.
In time, then, we might even see some AMM projects incentivize and promote Impermax’s lending markets since these markets can serve as a direct and increasingly important pipeline of activity to them.
Learn more about Impermax
Impermax is a first-of-its-kind protocol for borrowing and lending LP tokens, so be sure to keep the project on your radar as it now works on adding support for LP tokens from Uniswap V3 and other major DeFi trading protocols like Curve and SushiSwap. You can learn more by following Impermax on Twitter or by joining in on the project’s community discussions on Discord and Telegram.
Disclosure: This post is part of our paid promotional DeFi Pulse Partner Program; We’ve partnered with Impermax to help educate and inform the community about its permissionless lending markets. As always, we’re committed to providing the entire community with quality, objective information, and any opinions we express are our own.