Impermax (IMX): Multiply Your AMM Yields Today

Introduction

In recent years, the DeFi world has improved by leaps and bounds, with perks such as staking, yield farming and crypto lending spearheading the movement. Even if DeFi doesn’t completely take over the world of finance, it’s clearly causing a stir that’s not about to stop anytime soon.

Of the new features DeFi offers, the AMM (automated market maker) has been one of the most successful. Billions of dollars are locked in liquidity pools across protocols, and the figure is only set to increase within the near future. New updates are aimed at maximizing users’ returns by leveraging their positions in liquidity pools. Impermax is one of the pioneer protocols in this new sector of lending that’s based on LP tokens.

In this article, we examine the Impermax protocol and learn how to maximize returns by leveraging the features it offers.

What Is Impermax?

Launched in 2018, Impermax is an automated crypto lending platform that’s cross-chain, permissionless and decentralized. Serving users of decentralized exchanges like Uniswap and Arbitrum, it facilitates borrowing and lending in isolated lending pools. 

Like other liquidity pool types, these lending pools contain two distinct tokens which are leveraged by loans from Impermax pools. Impermax uses a feature known as leveraged yield farming, with which borrowers can get loans to improve their positions in a farm by using their current LP tokens as collateral. This way, they earn on both their collateralized tokens and their borrowed funds. 

Now, you may ask: What if a lender goes all in and falls into impermanent loss? Not to worry — Impermax has designed a system that takes this potential issue into consideration. The risk of impermanent loss is eliminated, as users do not deposit funds into DEX contracts; rather, the funds are used for leverage because they’re loaned to other farmers. The yield farmers carry the risk of impermanent loss, while the lender is safe from it. This recently launched version of yield farming is known as indirect yield farming.

What Is IMX?

IMX is a multi-chain token which acts as the governance token of the Impermax protocol. Its total value locked (TVL) started off at $8M and has grown to approximately $40M. It’s still on track to grow as it gains more popularity, with the aim being to reach a billion-dollar valuation. 

At launch, a total of 14 million IMX tokens were airdropped to roughly 35,000 Uniswap v2 liquidity providers. Following the initial airdrop, a second round of 500,000 IMX were airdropped to early supporters, and to those who used their network before its launch date, which fell on April 29, 2021. 

The total supply of IMX is 100 million tokens, while its current circulating supply is unknown. For every transaction, such as lending, borrowing or repayment of loans, a fee is charged in IMX. This is important for the future growth of the Impermax network.

How Does Impermax Work?

Users become liquidity providers when they deposit tokens into a pool to maintain the tokens’ security. Each liquidity provider (LP) is given a token, which acts as proof of how much they’ve provided to the pool. 

Impermax uses these tokens as collateral for giving out loans, which in turn must be reinvested into the liquidity pair.

To better understand how Impermax works, let’s look at a hypothetical scenario:

• Jade is a liquidity provider with $10,000 worth of ETH/DAI locked up in Uniswap.
• The annual percentage yield (APY) on Jade’s investment is 25%.
• Because Jade believes this yield is going to increase, Jade leverages their position to $100,000 using the Impermax lending protocol. Jade does this by putting their liquidity provider’s token up as collateral in order to receive either DAI or ETH.
• Jade must reinvest the loan into the pool.
• The ETH/DAI yield increases from 25% to 50%, meaning Jade’s prediction was correct. 
• Instead of earning $5,000 in returns, Jade earns $50,000 in returns per year, profiting both from the yield’s increase and from the Impermax leverage.

Key Features of Impermax

Loans For Liquidity Providers

With Impermax, liquidity providers (LPs) on Uniswap can use their liquidity pool tokens as collateral to obtain more loans. In the past, these tokens have been relevant only when an LP wanted to remove their funds from the pool. With Impermax, however, these tokens can be used as collateral to get loans.

Minimal Risk of Over-Collateralization

Impermax only allows loans from the same pool on the borrower’s liquidity pool token. This means the loan is backed by the asset, and the risk of liquidation is removed. For instance, if someone wants to use their ETH/DAI tokens to get a loan, they can only get a loan of either Ether or DAI.

Leverage

Why would you need the same tokens you have in the liquidity pool — and not simply get another token? The answer is simple: the main purpose of Impermax is to increase returns. Hence, the aim of the loan is for you to reinvest your tokens to multiply your yield on the same liquidity pair. Depending on how much risk you’re willing to take, you can also choose the leverage type you want. Since there’s a chance your tokens will be liquidated if a major price shift occurs, it’s important to be careful with your desired risk/reward ratio.

No Impermanent Loss

One of the key features of the protocol is that  lenders benefit by getting an algorithmically backed repayment process that shifts the risk of impermanent loss to the borrower. Whether the lender participates in the pool or not, the value of their investment remains the same.

IMX Tokenomics

Token name & Ticker: Impermax (IMX)

Maximum Supply: 100 million IMX

Circulating Supply: Unknown

Ethereum Contract Address: 0x7b35ce522cb72e4077baeb96cb923a5529764a00

Avalanche Contract Address: 0xeA6887e4a9CdA1B77E70129E5Fba830CdB5cdDef

Arbitrum Contract Address: 0x9c67eE39e3C4954396b9142010653F17257dd39C

Polygon Contract Address: 0x60bB3D364B765C497C8cE50AE0Ae3f0882c5bD05

IMX records decent daily trading volumes. In the past week, the average trading volume stands at approximately 50, 000 per day.

Pros and Cons of Impermax (IMX)

Pros

• On Impermax, a user can only borrow the underlying assets they have on their LP token, making it very efficient for them to leverage.
• A lender can choose which of the tokens in their pair they want to buy.
• There’s individual safety in each pool. If one pool is attacked, the borrowers of other pools won’t be affected.
• Impermax is permissionless — meaning anyone can add a crypto pair and gain leverage on the new pair immediately. All token pairs can be borrowed and lent using Impermax.

Cons

• As much as it’s an advantage, we would prefer if users could borrow assets outside their liquidity pair tokens.

Is Impermax (IMX) a Good Investment?

Impermax can be classified as a good investment because of the features it offers and the problems it solves. One key issue it helps mitigate is impermanent loss. The risk of impermanent loss will always exist on some level, with the only definite solution being to stay out of liquidity pools altogether. However, having an indirect form of yield farming where the risk is taken off the lender isn’t half bad.

As a permissionless lending market, there’s no central authority gauging your loans and the LP tokens you want to use as collateral. No one is deciding if your investment choice is good or not; hence, borrowers can be more “free” or unrestrained in their approach to loans. 

Regarding asset pairs, limiting them does come with some benefits. For the security of the network, the rule for avoiding bad loans — which mandates that users leverage assets in their LP token pair — can also be a good one. It discourages users from making poor investment choices, and maintains the integrity of the network. So, if your LP token is for an ETH/DAI pair, you can only borrow either ETH or DAI. You cannot borrow funds and risk them on speculative and highly volatile choices, such as meme coins.

Adding Uniswap 2.0 as the first AMM is a good choice because it demonstrates an innovative collateralization model for the LP tokens. Two problems — namely, over-collateralization and lack of publicity — are thus solved with one solution.

Buying the IMX Token

Since IMX is a multi-chain token, you can purchase it on different decentralized platforms, like Uniswap and SushiSwap, using AMMs. It’s also available on some centralized exchanges. However, before buying IMX on centralized exchanges, check the trading volume and number of available users. This will help you sell your tokens if/when you want, and reduce the risk of illiquidity as well. 

Closing Thoughts

The DeFi industry is dynamic, complex and full of intricacies, with new products seemingly launched every other day. The Impermax protocol is proof of this fact. As a matter of fact, how it hasn’t existed in the traditional finance sphere up to now is a mystery. Leveraging based on the multi-chain concept means it’s impervious to Ethereum’s network congestion, and buying and selling are easy. While there aren’t yet many players in the liquidity pool leverage field currently, Impermax needs to stay on its toes and continue putting forth its best to avoid getting edged out by competitors.