How Plit Protocol Avoids Impermanent Loss for Liquidity Providers

The PLIT protocol provides a unique solution to the impermanent loss problem for stablecoin providers by shifting the burden of absorbing any loss caused by price changes in the project token to the project itself. This ensures that stablecoin providers can earn a stable return on their investment without having to worry about market volatility, making PLIT an attractive option for those seeking low-risk investment opportunities.

PLIT Protocol ensures that stablecoin providers do not suffer impermanent loss by using the contract linked to the NFT redeemed for stablecoins to adjust any loss resulting from fluctuations in the token price.

example;

ABC = 100$ dai = 1$.

The user adds 100 dai, PLIT protocol adds 1 ABC.

Liquidity pool for ABC/dai after adding liquidity = 10 ABC * 1000 dai = 10,000.

contract on PLIT protocol holds = 1 ABC + 100 dai = 10% of the pool.

If the price of the project token increase

ABC = 400$ dai = 1$.

pool after balancing = 5ABC * 2000dai = 10,000.

users request withdraw of 100$ = contract on PLIT protocol redeem 10% of the pool = 0.5ABC + 200 dai.

The contract will match the initial Dai deposit = 100 dai.

users will get 100dai + fees generated.

The remaining 100Dai will be used to buy ABC tokens. contract will hold

= 0.75 ABC + 100 Dai + fees

If the price of the project token decrease

ABC = 50$. dai = 1$

pool after balancing = 20ABC * 500dai =10,000.

users request withdraw of 100$ = contract on PLIT protocol redeem 10% of the pool = 2ABC + 50 dai.

The price of the token decreased = 50%.

The contract will sell 50% of the ABC token = 2ABC - 50%.

The contract holds = (2ABC - 50%) + 50dai + fees.

= 1 ABC + 100dai +fees.

users get 100dai = fees and the Remaining 1ABC + fees will be sent to the project vault for future liquidity provision.