How Does a Pegged Asset Pair (Like wBTC/renBTC) Minimize IL? ⎊ Path

How Does a Pegged Asset Pair (Like wBTC/renBTC) Minimize IL?

A pegged asset pair, where both tokens are designed to maintain a 1:1 price ratio (e.g. two different forms of Bitcoin on the same chain), significantly minimizes impermanent loss. Since the price ratio rarely deviates, the condition for IL is largely absent.

This allows LPs to earn high fees with minimal risk of divergence. Such pools often use a constant sum curve instead of a constant product curve.

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Glossar

Constant Sum Curve

Equilibrium ⎊ ⎊ A Constant Sum Curve, within cryptocurrency options and derivatives, represents a theoretical price relationship where gains for one participant are directly offset by losses for another, maintaining a fixed total value.

Pegged Asset

Definition ⎊ A Pegged Asset is a cryptocurrency or digital token whose value is designed to remain stable relative to another asset, typically a fiat currency like the US dollar, a commodity, or a basket of assets.