Introducing InstaDEX and how it Solves the Problem of Impermanent Loss and Involuntary Token Exposure
Among one of Instaraise’s services is its DEX — InstaDEX, which plays a key role in the launch of new projects.
N/B: Instaraise is the first-ever decentralized Initial DEX Offering, launchpad, and incubation protocol built to support new projects on the Tezos blockchain.
With the InstaDEX, users can buy, sell, swap, participate in IDOs, stake, and farm.
As mentioned above, users can trade tokens listed on the DEX and raise funds for new projects through the pre-sales facilitation techniques, but also the DEX can be used for Liquidity Pool Staking by Liquidity Providers through an AMM performed in the most permissionless and secure way.
InstaDEX via its novel trading features is working towards eliminating the issues that often arise in many other Automated Market Makers (AMMs).
What are Automated Market Makers (AMMs)?
In the Decentralized Finance (DeFi) industry, AMMs make up a part as they allow users to trade digital assets in an automatic and permissionless way through Liquidity Pools (LPs) instead of the traditional method of buyers and sellers.
How? Instead of buying and selling assets in the traditional exchange method, users provide LPs with their assets/tokens (why they are called “liquidity providers”) in a dual pool, the prices of these assets are determined by a pre-defined/fixed mathematical formula (ratio), and as the exposure of the LP increases, the quantity of the assets vary based on the demand.
There are 2 issues associated with Traditional AMMs that InstaDEX is mitigating, which are Involuntary Token Exposure and Impermanent Loss. Let’s find out what these terms mean.
1. Impermanent Loss
In AMMs, liquidity providers provide two or more tokens for added liquidity. Thus, a liquidity provider can take out his/her asset from the pool before the fixed time, making the price of the combined assets in the pool diverge/reduce than what it should be. This is called Impermanent Loss.
However, when this occurs, other LPs may develop a fear of the volatility of the pool and begin withdrawing their assets causing a plunge in the market.
2. Involuntary Token Exposure
In participating in AMMs, liquidity providers may need to expose their favorite tokens to be a part of the liquidity pools. When they delegate these assets to the pools, they become exposed to price movements of the combined assets in the pool, and this results in the loss of their long positions on the assets they treasure.
This is referred to as “involuntary” because liquidity has no other option than to expose its previous assets.
How is InstaDEX Solving these Issues?
To solve the issues of impermanent loss and involuntary token exposure, InstaDEX is making use of the following features: Single Asset Liquidity Provisioning and Impermanent Loss (IL) Insurance.
1. Single Asset Liquidity Provisioning
Using InstaDEX, liquidity providers do not have to delegate two tokens to a liquidity pool. Just stake one asset and receive the rewards allocated to the pool where the token is staked.
Also, in addition to staking just one asset, liquidity providers do not need to stake their favorite assets. They can delegate any token of their choice and the token will receive all the exposure.
InstaDEX will make it possible for LPs to provide liquidity in $INSTA — the native token of Instaraise by choice.
2. Impermanent Loss (IL) Insurance
InstaDEX is making it possible for liquidity providers to be insured against impermanent loss after at least 30 days of staking on the Liquidity Pool.
To get 100% of the IL insurance, an LP’s asset must have stayed 100 days in the pool, meaning 1 day represents 1%. But he/she must have stayed 30 days to receive the insurance or else no protection cover will be received.
Liquidity providers who unstake after more than 100 days will receive 100% insurance and additional rewards to cover any loss that occurred as IL.
The InstaDEX is an exciting DEX for liquidity providers who wish to earn rewards via liquidity and are covered against loss of any kind.
About Instaraise
Instaraise is the first-ever decentralized Initial DEX Offering, launchpad, and incubation protocol built to support new projects on the Tezos blockchain.
This protocol aims to give support to these projects and build a DeFi universe by helping them raise funds, and build a dedicated community of enthusiasts so that they can begin developing their products.
The crypto space is an ever-increasing one with many projects that come up every day with fresh ideas, concepts, and very attractive utilities. Yet, the one thing they often lack to develop their ideas into full-bloom projects is a dedicated community and funding.
For the Tezos blockchain especially, the launch of projects is lesser than in other blockchains and this may be because of the scarcity of platforms dedicated to furthering the launch and sale propositions of protocols. Hence, Instaraise has come to the rescue.
