Why Providing Liquidity with Wise Token (WISE) on Quickswap is “Mathematically Riskless”
Wise Token + Quickswap. 50% ROI annually with negligible downside risk — Mathematically illustrated.
Tutorial here. Read on for proof.
Providing liquidity can yield an astounding return on investment (ROI), but it also comes with risk — referred to as “Impermanent Loss.”
Impermanent loss is the “temporary loss of funds occasionally experienced by liquidity providers because of volatility in a trading pair,” [source]. As one asset’s price goes up or down, compared to the other asset in the liquidity pair, providers temporarily lose money (considering the value of their assets had they not provided liquidity and just held the asset instead).
There is “upside” and “downside” impermanent loss: Upside refers to the price of WISE increasing vs ETH, where downside refers to the price of WISE decreasing vs ETH.
The upside is an opportunity loss, where providers could have made more profit had they just held WISE, though it is still a profit. The downside, on the other hand, is an actual loss of initial investment. Both are temporary, assuming the prices return to their initial value.
So why would anyone provide liquidity if they were better off just holding the asset in question? Opportunity. Providing liquidity can yield upwards of 1000% ROI annually — though typically the higher the ROI, the higher the risk of volatility. More volatility means more impermanent loss.
The Claim: There is negligible risk of downside impermanent loss for the ETH/WISE liquidity pair on Quickswap.
Background: WiseSoft, LLC (the company that developed WISE) has integrated with the Polygon Network (formerly Matic Network) to bring high ROI “liquidity mining” to WISE through a collaboration with Quickswap. Investors who add liquidity can expect to receive 50% annual ROI with no risk of impermanent loss, should they provide to the ETH/WISE pool (Calculated on 5 April 2021).
The Quickswap project, like Uniswap, is a DEX for swapping and creating liquidity; however, as a layer 2 solution running on the Polygon Network, Quickswap boasts exceedingly low gas fees.
The Proof: I will mathematically illustrate that a liquidity provider in the ETH/WISE (also designated as wETH/WISE) liquidity pool on Quickswap will have no risk to their initial investment as a result of impermanent loss.
Below is the mathematical curve of Impermanent Loss due to the volatility of one asset vs another in a liquidity pair (source).
Where current price as a percentage of initial price equals 100%, the slope of the curve is horizontal at 0% change in total liquidity value. This makes sense. Move the current price of the asset in question up or down and the change in total liquidity drastically changes — especially to the left.
This is where WISE likes to show off. Since WISE is foremost a decentralized staking platform, most WISE tokens on the market (88.02%) are currently locked away in stakes, and for an average of 864.3 days (source). This means that if every holder that was not staked sold their WISE, the price could only fall -21.08% (source). Anything beyond that is not possible at the momment (unless stakers decide to their contracts early, which penalizes their initial contribution upwards of 90%… in other words, there’s no precedent for that).
Then there is the second factor. WISE is backed by ETH — a key differentiating factor for this token. Since there is a pool of 57,438 ETH backing the price, WISE is reasonably affected by the price movement of ETH. If ETH goes up or down so does WISE, at a commensurate rate. Therefore, the price movement of ETH is not a true factor in determining impermanent loss and so can be considered a constant.
Now, let’s work out the mathematics to support the primary claim. Below is the formula for calculating impermanent loss (source). Note: This equation compares holding WISE and ETH vs providing liquidity with equal parts WISE and ETH.
Since we know the maximum percentage WISE can fall compared to ETH (-21.08%), P2 becomes (1.00–0.2108) or 0.7892, and P1 becomes (1.00), as a constant value of ETH compared to WISE.
This returns a value of -0.007, or -0.7%, meaning that the maximum downside risk of impermanent loss is -0.7% in the worst case.
This result is further substantiated by this handy chart (source), as well as the graph above.
But wait… -0.7% is, indeed, a loss. How can that be no risk?
I have not yet mentioned the rewards for being a liquidity provider.
First, consider the fees. All liquidity providers generate annual ROI via fees from others swapping WISE for or from other cryptos. Currently, those fees generate a 9.03% ROI annually (source), which more than covers the -0.7% incurred loss, should all liquid WISE holders sell and no new stakes be created (again, highly unlikely).
Then there is the primary reward of 50% annual ROI, which the WISE team has secured in a long-term partnership with Quickswap. Liquidity providers are paid in QUICK Tokens (Info) and are able to leave the liquidity pool whenever they please. Our deal with Quickswap is that the more liquidity we provide on the WISE liquidity pairs, the higher the rewards will become. The collective pool is currently allotted 34 QUICK ($5,500) each day, with larger providers taking a bigger cut.
While 50% ROI is not the most competitive rate on the market, the ETH/WISE liquidity pair on Quickswap represents the safest way to earn this level of passive income. No other token can offer protection to your initial investment like WISE can — and that is a mathematical fact.
Please refer any questions to our telegram channel: WiseToken
About WISE Token
WISE is an innovative cryptocurrency designed to be a fully decentralized store of value that can be easily staked to earn trustless interest. The WiseSoft team, with the help and guidance of the WISE community, is dedicated to making the future of finance completely trustless. For any questions, email the team at contact@wisetoken.net and visit us at www.wisetoken.net. Follow us on Twitter (@Wise_Token) and Instagram (@wisetoken), and subscribe to our YouTube channel (Wise Staking) for the latest news.
Polygon/Quickswap Resources
- Tutorial: https://youtu.be/9VEIVefZD0Q
- Bridge: https://wallet.matic.network
- Quickswap: https://quickswap.exchange
Other Resources
- Wise Token Staking Dashboard: https://wisetoken.net/staking
- Official Wise Token Documentation: https://wisetoken.net/docs
- Telegram: WiseToken
- LinkedIn: WiseSoft, LLC