💰Temporary Loss vs Impermanent Loss

In conventional spot AMM models like CFMM (e.g., Uniswap), liquidity providers (LPs) encounter impermanent loss. Nevertheless, this term can be profoundly misleading for several reasons:

1. Regardless of whether the market price increases or decreases compared to the price at which LPs added liquidity, they will experience impermanent loss, a unidirectional loss with no notion of "impermanent profit."

2. The "impermanent" loss incurred by LPs has the potential to transition into a "permanent" loss quite easily.

Nevertheless, within the LPMM model, liquidity providers (LPs) encounter what can more accurately be termed as an "impermanent loss," referred to here as a "temporary loss":

1.The BR value of the LP's liquidity pool typically remains around 0, and it is consistently anchored at 0 due to the influence of the funding rate, ensuring a balance between long and short positions 2.Holding a specific position does not inherently translate into losses for LPs. In fact, based on the experiences of certain derivatives decentralized exchanges (DEXs) founded on the "betting between LPs and users," over the long term, there is a higher probability of LPs deriving profits from their positions.

3.Liquidity providers (LPs) can consistently receive a 45% transaction fee and mining yield, showcasing a substantial competitive edge.