Liquidity Pool Fees May Not Offset the Gap With Holding
Edited by Steinar Vigdel Kolnes, Editor, Oslo
A hypothetical example shows how a liquidity pool position can rise in value yet still fall behind simply holding the same assets.
Liquidity pool returns can be positive without matching the outcome of holding the underlying assets, according to a hypothetical example outlined by The Defiant.
In the example, an initial $200 pool position reaches $400 before trading fees are included. Keeping the original holdings unchanged would instead produce a value of $500 at the same final asset prices.
That leaves the pool position $100 behind before fee income is counted. The comparison illustrates why earning fees alone does not establish that providing liquidity has delivered a better result than holding.
Source: The Defiant
