In some communities, some investors will be seen asking in the community why the impermanent loss makes his principal lose inexplicably. Seeing that the principal is getting less and less, how to stop this trend?

First understand the impermanent loss.

The decentralized exchange DEX uses an automated market maker such as AMM. The AMM price is to first gather all the assets into the liquidity pool, and automatically calculate the price according to a certain algorithm. For example, Uniswap uses a constant product X*Y=K to calculate. It can be traded in real time and is very fair without relying on market makers.

But this price is only established in this trading liquidity pool, and it is another price in other liquidity pools, let alone keeping pace with off-market prices. So this will create an arbitrage space, and arbitrageurs can "flatten the price" until the price of the trading pair is restored to the original ratio, reaching a balance between supply and demand. The profit earned by arbitrageurs is the loss of liquidity providers (that is, investors participating in liquidity mining). It means that your principal has depreciated, and your income in the mining pool may not be worth the loss caused by the price being moved.

"If you don't know where the benefits are coming from, you may be the source of the benefits."

So how can ordinary investors avoid impermanent losses?

Ordinary investors are not professional enough or have unequal information, and it is difficult to outperform the entire market with their own strength. They must learn to use professional external auxiliary tools, so that their efficiency will be higher. Whether it is an oracle, a stable currency, or some trustworthy professional institutions (such as using a smart pool to intelligently dispatch the highest-yielding mining pool), they can all lower the threshold for entering DeFi investment and maximize income.