DeFi services come with a lot of benefits and possible risks as well. Liquidity providers in the DeFi space all agree that providing liquidity is often a risk. This is because the protocol could suffer losses from hacks and other forms of fraud, as well as the possibility of an impairment loss. An impairment loss is a risk associated with providing liquidity to dual-asset pools in DeFi protocols.
Impairment is not often given the attention its seriousness deserves but it goes a long way in deciding an LP’s profit. In today’s crypto market, it’s nearly impossible not to incur an impairment loss when staking or depositing to a protocol. More than 43% of DeFi users suffered an impermanent loss in 2021, according to a Cornell University study. But, finding a solution to this challenge seemed unachievable until Armadillo emerged.
What Is Armadillo?
Armadillo is the latest toolkit designed by the Crypto Volatility Index Team. The CVI team calculates the implied volatility of Bitcoin and Ethereum option prices using the Black-Scholes option pricing model. It then examines how markets project future volatility. Armadillo is a tool designed to manage risks in the DeFi space.
At first, the CVI team released a beta version of the Armadillo project. However, that version had a cap on the number of premiums a user could buy. But, the alpha version has increased features for a greater experience.
Meet @Armadillo_ILP – Impermanent Loss Protection ⚔️
The first-ever Multi-chain, Non-custodial, Customized & Decentralized on-chain protection.
— Crypto Volatility Index (CVI) (@official_CVI) July 20, 2022
Armadillo offers users the chance to:
- Acquire a personalized policy that matches their pertinent pair.
- Specify the coverage period and amount (i.e., 14 days, 30 days, or 60 days).
Users have protection against any transient losses incurred on the particular asset and over the given date ranges during the coverage period. In so doing, users can safeguard themselves against any fleeting loss while maximizing any returns or advantages involved with providing liquidity.
In essence, the impermanent loss protection is set up as an insurance contract represented by an NFT that denotes the coverage value, suitable time range, and the necessary token pairings. If/when a user experiences an impermanent loss and it meets the necessary requirements (which are the time period, asset pair, etc.), the money is seamlessly and securely returned to their wallet.
Speaking of Armadillo’s benefits, Gal Yalon, Head of Marketing for Armadillo, said, “By using Armadillo, users are able to supply liquidity in any, chain, DEX, or platform. The users do not need to stake their LP tokens in order to purchase the Armadillo impermanent loss protection.”
Moreover, Armadillo is now protecting bitcoin and ethereum.
We are excited to announce that as of today we are protecting a new – BTC-ETH!
More pairs are on the way!
— Crypto Volatility Index (CVI) (@official_CVI) July 11, 2022
The Advantages of Using Armadillo
Here are a few good reasons to use this new DeFi tool.
- Multi-chain protection: This is one of the core features of this risk management tool. Armadillo is accessible across chains and on any chain, liquidity platform, or DEX. Individuals can use this impermanent loss solution outside the Armadillo ecosystem without any problems since there is no necessity to stake or provide liquidity on the Armadillo platform. This is the first cross-chain impermanent loss solution that is completely detached from the liquidity it safeguards.
- Customizable protection: Protection is a huge concern in the DeFi space, and Armadillo has that covered as well. The Armadillo team has offered users complete discretion over the rules that govern their impairment loss protection. Users have the right to decide on the number of assets, the number of token pairs, the period, and other details.
- Decentralized on-chain protection: Armadillo uses oracles and smart contracts to guard against outside interference and manipulation. Furthermore, there is no counterparty risk for the protected liquidity since the premium for the protection is totally decoupled.
By using Armadillo, liquidity providers will be able to reduce the risk associated with the volatility of the underlying tokens they have deposited in liquidity pools.
Follow this project on its social media account for more information.
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