Mitigating Impermanent Loss in DeFi: The Concentration-Asymmetric Liquidity Model

Abstract

The Concentration-Asymmetric Liquidity Model (CALM) offers a novel solution to address the pervasive issue of impermanent loss (IL) in decentralized finance (DeFi) liquidity provision. Empirical data demonstrates that CALM significantly outperforms traditional liquidity models, such as Uniswap v2, even during extreme market fluctuations. CALM yields higher returns for liquidity providers while mitigating IL risk by allowing single-sided liquidity provision and effectively managing toxic order flow. This article argues for a paradigm shift in DeFi from focusing solely on high annual percentage yields (APY) to prioritizing sustainable, long-term profitability. The Radix platform, built to enhance user experience and developer engagement, provides the infrastructure necessary to support CALM's innovative features and foster broader adoption of DeFi solutions.