How Do Multi-Asset Pools Handle the Addition or Removal of a Token in Relation to Existing Liquidity Providers’ Impermanent Loss?
Adding or removing a token from a multi-asset pool is a complex governance-driven process that fundamentally alters the pool's invariant. This action typically requires deploying a new pool contract and migrating liquidity.
For existing LPs, this event crystallizes their impermanent loss at the moment of migration. The decision to change the composition forces a realization of any gains or losses, as the basis of their liquidity provision (the specific basket of assets) is being changed.
It is not a dynamic process within a live pool.
Glossar
Impermanent Loss
LiquidityRisk ⎊ Impermanent Loss quantifies the temporary divergence in value between holding assets in a decentralized liquidity pool versus simply holding those same assets in a non-interest-bearing wallet, resulting from price movements between the deposited pair.
Liquidity Provision
Capital ⎊ Supplying assets to decentralized pools forms the essential base layer for automated trading and derivatives pricing across the digital asset landscape.
Multi-Asset Pool
Construction ⎊ A Multi-Asset Pool represents a portfolio strategy employing diverse financial instruments, extending beyond traditional single-asset class allocations, and is increasingly utilized within cryptocurrency markets to mitigate idiosyncratic risk.