Money 2.0 Stuff: Daddy Binance thinks you're stupid

Uniswap is an automated market maker non-custodial exchange that uses a constant product equation to set a deterministic price curve according to pair pool liquidity at any given time — simple stuff really. Anyone in the world can contribute pair liquidity and in return they receive 30 basis points pro rata on each trade. 

When we think about the return profiles for liquidity providers, the term ‘impermanent loss’ often appears, which describes a phenomenon that derives from pair price volatility. Imagine I’m a market maker. I provide 300 DAI worth of liquidity for the ETH/DAI pair — 150 DAI worth of ETH, 150 DAI — where ETH is trading at 150 DAI. The price of Ether then falls to 100 DAI. As a market maker, I am buying Ether as the price falls and concurrently selling DAI as its price appreciates. If the 30 basis point fees fail to sufficiently cover this knife catching process, I find myself in a position where I have effectively lost money compared to a passive 50% ETH 50% DAI portfolio.