Kima Whitepaper
  • Introduction
  • About The Kima Blockchain
  • Existing Challenges with Asset Transferring
  • The Kima Infrastructure
  • Example: Liquidity Provider Incentivization
  • Incentive Scheme
    • A. Incentive Scheme: Liquidity Penalties and Bounties
    • B. Incentive Scheme: Protection Mechanisms
    • C. Incentive Scheme: Passive and Active Liquidity Providers
  • Simulation of Kima's Liquidity Management
  • Network Income and Distribution
  • Impermanent Loss and Arbitrage
  • Protection Against Blockchain Reorganization
  • Kima's Technology and Other Solutions
    • About Asset/Token Wrapping and Cross-Chain Bridges
      • Custodial Wrapping
      • Non-custodial Wrapping
      • Liquidity Fragmentation
    • Direct Messaging
  • The Security of the Kima Blockchain
    • Other Security Threats
  • Conclusion
  • Disclaimer
Powered by GitBook
On this page
Export as PDF

Impermanent Loss and Arbitrage

To facilitate cross-chain transfers without token-wrapping, Kima manages liquidity pools across multiple different blockchains. As users transfer funds between these pools, liquidity providers can risk impermanent loss. In fact, in Uniswap v3, the average liquidity provider saw negative returns due to impermanent loss¹.

Kima liquidity providers are not subject to impermanent loss. Kima is using one-sided pools, i.e. in each pool there is only 1 asset, and thus LPs are not exposed to impermanent loss.

Initially, Kima will use stablecoins - assets with similar value (e.g. swap USDT on Ethereum for USDC on Solana), which reduces arbitrage risks. In addition, Kima's fee mechanism disables arbitrage opportunities, as fees go higher than the tokens' price difference.

¹Stefan Loesch, Nate Hindman, Nicholas Welch, and Mark B. Richardson. Impermanent loss in uniswap v3. Technical report, Topaze Blue, 2021.

PreviousNetwork Income and DistributionNextProtection Against Blockchain Reorganization

Last updated 2 years ago

Page cover image