Temporary loss refers to the condition in which investors lose assets they previously used to provide liquidity to the liquidity pool.
Zircon Finance, an automated market maker (AMM) and decentralized exchange on Moonbeam, has announced the launch of a mainnet to address investor concerns related to unsustainable losses in decentralized finance (DeFi).
Temporary loss refers to the condition in which investors lose assets they previously committed to providing liquidity to a liquidity pool in order to profit from earnings. Dubbed Zircon Gamma, the mainnet network aims to counter such losses with one-way liquidity through the Moonriver network, which allocates or allocates risk between a volatile cryptocurrency and a stablecoin.
For example, in the case of the ETH/USDC pool, Zircon allows Ether (ETH) to maintain full exposure while providing security through the USD Coin (USDC) stablecoin. In addition, the mainnet allows both parties to receive swap fees.
As Zircon explains, liquidity pools like ETH double their returns compared to regular pools, but are still at risk of volatile losses. However, AMM’s patented asynchronous LP mechanism reduces the risk by at least 90%.
The mechanism does this by incentivizing liquidity pools to replenish lost ETH with fees earned. Speaking to Cointelegraph, Andrey Shevchenko, co-founder of Zircon, revealed that his inspiration for building such a system came from traders’ need for a flexible and permission-free solution, stating:
“Too many people have been burned by teams making fantastic but misleading claims to eliminate or compensate for temporary losses. In some cases, the mechanism they offer (with dynamic fees) just doesn’t work.”
Shevchenko acknowledged the obvious error conditions if the token falls to $0, but argued that “Zircon lowers it enough that intermittent losses are not a problem. In addition, we can arm it to create options.”
Compared to existing players protecting against intermittent losses, Shevchenko highlighted numerous fail-safe mechanisms that help balance liquidity pools. However, he recommended that users do some research when choosing trading pairs, adding, “This is an incentive based economic system and you can expect it to work 99% of the time.”
In addition to protecting users from intermittent losses, what sets Zircon apart is the provision of liquidity directly to stablecoins and lower swap fees. “In general, we will be a cheaper and more liquid option for exchanging everything except really popular pairs for Uni V3,” Shevchenko concluded.
Connected: The liquidity protocol uses stablecoins to ensure there are no volatile losses.
A recent white paper published by Trader Joe, a DeFi avalanche protocol, also claims to have solved the problem of intermittent losses.
The white paper describes the use of the Liquidity Book (LB), which introduces variable swap fees to “offer traders trades with little or no slippage.”