This Impermanent Loss Hack Will Make Millionaires

Added: 2026-05-20

[00:00:00]Most DeFi investors have no idea about this single impermanent loss hack that they can implement into their portfolio right away. Today, we're going to be diving deep into impermanent loss and discussing a couple different mechanisms that you can use to turn impermanent loss into your best friend as opposed to your worst enemy. So, diving straight in, I'm using the Metrics Finance V4 beta, which actually does go live on May 26th. I'm also hosting a free live training on the same day to show you exactly how you can use Metrics V4 to evaluate any pool in less than 10 minutes by using our AI and simulation engine. So, if you guys want to put your name on the list for that, so that way you can be there live, get access to the exclusive launch bonuses, the link is going to be at the top of the description. But, diving in, there's a couple different types of pools that we can run. There's crypto to stable, there's crypto to crypto, and then there is stable to stable. Now, we're not going to be focusing on stable to stable today, but rather we will focus on crypto to crypto and crypto to stable.

[00:00:52]I'm going to start off with Ethereum to USDC, and I'm going to pull it up on our simulation terminal. Ultimately, with pools like Ethereum to USDC, impermanent loss basically buys ETH on the way down and sells it into USDC on the way up.

[00:01:04]That's because when the market is going up, people are buying our ETH. That's why the market's going up. When the market's moving down, people are selling us ETH. That's why ETH is going down, because they're selling ETH, basically.

[00:01:14]So, when we think about it from that mindset, right, we can use something like a crypto to stable pool as a dollar cost average engine. And a lot of people really don't look at it that way, because they just want to dive into a pool, collect fees, and get passive income. But, they never actually structure their pools properly. The thing is, there's almost like an invisible set of rules that you have to understand before diving in liquidity pools, but they're portrayed to be this simple thing. So, let's look at an Ethereum to USDC pool. Let's assume that we deposited $100,000 and ultimately with a minus 15 plus 15% range. Well, this right here would do about 15% APR, and we're going to have to put up about 54% of our capital in USDC and 46% in Ethereum. So, whenever Ethereum goes up to say 2455, which is right above our range, we're out of range, we're sitting entirely in USDC, and even though Ethereum went up 15%, we are only up 3.35%, which the earnings are not going to outweigh considering that we are only generating 15% per year. And I say only, realistically, that's a pretty good return compared to traditional markets.

[00:02:20]But on top of that, what happens if Ethereum goes down? Well, then say it goes to 1810, we're now sitting in 49 Ethereum, we are down 11.27% and Ethereum is down 15.13%.

[00:02:31]So, we're actually kind of mitigating our downside exposure in this case scenario. But again, let's look at the actual components. We started with 21 ETH and 53,000 USDC. When we go below our range, we have zero USDC and 49 ETH, which means that our 53,000 USDC bought about 28 Ethereum for us, basically. And then say when we go up, right? Right back up to 2455, our 21.75 Ethereum was sold for about 50,000 USDC essentially. So again, we just have to structure our pool properly over a long enough horizon, so that way we can capture the fees, but at the same time either buy ETH on the way down or sell it on the way up. So, here's the thing, if we were to start with a range of minus 15 still, but this time only plus five, you'll notice we now have 76% USDC and 24% ETH. We would start with a range like this if we were bearish on the market and we wanted to buy ETH on the way down. Because now we have a lot more USDC to buy ETH with, basically.

[00:03:33]And then likewise, if we were more bullish, we would want to have our max price at say plus 15% and then our min price we'd put at something like minus 5%. That way we start with less USDC and more ETH, so there's more ETH to sell throughout the position. Now, another layer that you can add to this is lending and borrowing. So, for example, let's just go over to simulate lending page and we're going to use the Aave V3 Ethereum market. Let's just say we were to lend out, in this case scenario, all of our money in ETH, for example, $100,000. That would be about 46.96 Ethereum. And then from there, we were to borrow against this Ethereum. Now, I would be comfortable going up to, let's just say, $30,000 initially. Because the thing is, when you're integrating lending and borrowing, you have to deal with liquidations. Your borrow always has to be lower than your collateral.

[00:04:19]And in this case scenario, if we're borrowing a stablecoin, which we will borrow, and your Ethereum falls to, say, $35,000 or so, that's where you're really in liquidation territory and you have to be very careful. The good news is, we're supplying 100 grand of ETH, and if there's even a possibility of us getting liquidated here, ETH would have to go down 60% and we have plenty of time to kind of make adjustments before ETH does go down 60% if it were to. But now we take this $30,000 and we actually put that in the liquidity pool, right?

[00:04:48]And in this case scenario, I'm going to go back to the example where we have a max price of, in this case scenario, let's just say plus seven, and then our min price is minus, say, 20 or so. Well, then ultimately, what's happening here is we are dollar cost averaging into ETH on the way down. ETH goes down to $1,700. We now have 15.33 ETH when we started with 3.37.

[00:05:11]Which means this 22,800 USDC that we put up is buying the other 12 ETH, roughly. Well, let me show you what happens if at 1,700 bucks, we just simply exit this pool and we don't dive directly back into it. We hold that ETH to our initial entry price and we now have $32,700.

[00:05:30]That's $2,703 more than what we actually started with, yet we are at the exact same price that we started. And know that does not come from yield, that comes from using impermanent loss to be your friend, right? You're dollar cost averaging into ETH on the way down, and then you're locking that DCA in at the bottom of your range, exiting the pool, and then waiting for it to go back to your initial entry price. Now, all during that time, you are earning yield on the way down, which means that you're actually probably going to have more than $2,700 extra. But, this right here is what the math tells you will happen.

[00:06:04]And yes, this pool is structured for the market to fall, but what happens if the market goes up? Well, ETH goes to, let's just say $2,300. We have $30,245, which is $245 more than what we borrowed. So, we're still able to repay the borrow, and guess what? This ETH over here that's our collateral still has full exposure to the market, meaning that this ETH right here is what's doing the heavy lifting when it comes to price gains. The thing is, we could also structure this position if we were expecting ETH to go on an absolute run, and we wanted to make a little bit more profit. Say we were to do a min price of minus five, and then we were to put our max price at something like plus 20.

[00:06:39]Well, now we're putting up 23% USDC, 77% ETH. And again, we're borrowing the same 30,000. We could honestly probably borrow more if we wanted to. If we're expecting the market to move up, we could be a little bit more aggressive with that borrow since we're not going to worry about liquidations. But, when ETH does go to our max price of 2560, let's just say, we're now sitting in 32,220 USDC tokens. Once again, $2,220 more than what we borrowed, and we generate all the fees along the way, which over the course of say 30 days is an extra five hundred bucks right there.

[00:07:13]And guess what? Our collateral still witnesses all of those price gains right there. And this borrow is still about $30,000 plus a little bit of interest, but that right there is the number one impermanent loss hack that you can implement into your portfolio right now, using these pools as a DCA mechanism and integrating lending and borrowing with them. Now, real quick, I'm going to actually show you a crypto-to-crypto pool as well, because it's slightly different. So, let's dive into something like ETH to wrapped Bitcoin. In these pools, instead of flipping you between USDC and ETH, it's flipping you between wrapped Bitcoin and ETH, which is where you have to pay attention to impermanent loss, because now you're trying to outperform just simply holding wrapped Bitcoin and holding Ethereum in your wallet, which means that you want to backtest things beforehand. That's part of what we're covering on May 26th. And you want to make sure that you are going to outperform impermanent loss, because your benchmark is holding in the market here. But the other thing I will say is you can integrate this strategy into the last one. Remember when I said when we go to the bottom of our range, we just simply hold? Well, if you take that capital instead and you park it into a crypto-to-crypto pool that has consistently outperformed impermanent loss, well, then you generate fees from that crypto-to-crypto pool on the way back up. You witness nearly all of your price appreciation and the fees outweigh the difference, cuz you're beating impermanent loss, and now you generate fees on the way up as well. So again, this is making impermanent loss your best friend as opposed to your worst enemy. If you guys enjoyed today's video, you found some value in it, make sure to drop a like, subscribe, notifications turned on, and check the description. I'll see you guys in the next one. Peace out.