Zircon Docs

Choosing Float for volatile tokens

Let’s imagine that you own some tokens of a project that you like, and want to stake them in Zircon liquidity pools to earn fees and compound your holdings.
In this case, you will only really have Float options, so let’s see how this vault system works by going through a few key principles.

1) Float will often reduce impermanent loss, but it offers no guarantees

The Float vault can fluctuate a lot in value, as the name suggests. Not just because of the price changes of the underlying token, but also because it will suffer varying degrees of impermanent loss.
It’s important to distinguish that the Float attempts to reduce impermanent loss (and succeeds in most cases), but it doesn’t offer any kind of guarantee that it will.
Float shares fluctuate in a wave-like pattern: sometimes they will have negative impermanent loss (“impermanent gain”), in other times it will have more impermanent loss than usual.
On average, Float shares should have dramatically reduced impermanent loss compared to normal AMM pools.

2) Float reduces impermanent loss by eliminating its compounding effect

Impermanent loss is so “nasty” because, from the perspective of any individual LP, it grows with the square of the price change from their entry point. Because it’s relative, the same price change may generate no impermanent loss for new LPs who just joined, or it might add 10% to the total loss of a long-time LP.
Pylon vaults have a shared impermanent loss that is affected by LPs joining and exiting. The system incentivizes “correct” actions that bring the system closer to balance, reducing impermanent loss for everyone.