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Impermanent Loss and Arbitrage
To facilitate cross-chain transfers without token-wrapping, Kima manages liquidity pools across multiple different blockchains. As users transfer funds between these pools, liquidity providers can risk impermanent loss. In fact, in Uniswap v3, the average liquidity provider saw negative returns due to impermanent loss¹.
Kima liquidity providers are not subject to impermanent loss. Kima is using one-sided pools, i.e. in each pool there is only 1 asset, and thus LPs are not exposed to impermanent loss.
Initially, Kima will use stablecoins - assets with similar value (e.g. swap USDT on Ethereum for USDC on Solana), which reduces arbitrage risks. In addition, Kima's fee mechanism disables arbitrage opportunities, as fees go higher than the tokens' price difference.
¹Stefan Loesch, Nate Hindman, Nicholas Welch, and Mark B. Richardson. Impermanent loss in uniswap v3. Technical report, Topaze Blue, 2021.