Yes, high APYs sound good in theory. But did you know that impermanent loss results in investors taking more losses than actual profits?
Impermanent loss from even and uneven liquidity pools. Source: Elaine Hu
Although the uneven liquidity pool and multi-asset pool both help reduce impermanent loss from the LP position, they do not eliminate it completely. If investors do not want to worry about impermanent loss at all, there are also other DeFi protocols that allow investors to provide only one side of the liquidity through a single-sided liquidity pool.
Another solution is to separate risks into different tranches so that risk-averse investors are protected from impermanent loss and that risk-seeking investors who bear the risk will be compensated with a high-yield product. Protocols such as Ondo offer a senior fixed tranche where impermanent loss is mitigated and a variable tranche where impermanent loss is absorbed but higher yields are offered.
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