Impermanent Gain vs. Vanilla Options

Call & Put options ("vanilla options") have been a staple across capital markets offering participants a robust way to long/short the underlying asset, its volatility, and to hedge their portfolios.

Impermanent Gain is very close to an Option in the principle – it has been created to hedge or cover the most known DeFi Risk: Impermanent Loss. In a sense, Options and Impermanent Gain share the same goal.

Impermanent Gain Options are a new kind of derivative specifically tailor made for DeFi unique risks. It’s not just a trading strategy, but a primitive for the DeFi Ecosystem.

Impermanent Gain options have many of the benefits you can get from Call & Put options with some unique advantages for speculators and hedgers alike.

The first significant difference to understand is the payoff...

Call & Put options have a linear payoff:

Call vs. Put Linear Payoff

Impermanent Gain options have a convex payoff:

Bull vs. Bear vs. Smile Impermanent Gain Convex Payoff

This is due to the fact that Impermanent Gain is a portfolio of options—the key benefits are:

• More aggressive payoff for speculators when your options expire in-the-money (ITM)

• The most accurate way to hedge a DEX LP position

LP Payoff vs. Impermanent Gain Payoff

A second order effect of Impermanent Gain's unique properties is that there is no need to manually choose a "strike" price—creating a much simpler trading UX!

However, at the same time, it slightly limits a speculator's flexibility to "build" their ideal position.