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One of the main flaws in the avalanche-based decentralized finance (DeFi) protocol, impermanent loss, according to Trader Joe, may be addressed.

The developers described the use of Liquidity Book (LB) with an additional variable fee swap feature to "provide traders with zero or low slippage trades" in a newly published white paper on Tuesday titled the JOE v2 Liquidity Book, which was written by Quant developers and researchers Adam Sturges, TraderWaWa, Hanzo, and software engineer Louis MeMyself.

According to Trader Joe, the new approach will lessen the transient loss "suffered by so many liquidity providers (LPs) on other DEXs amid market instability."

Impermanent loss occurs when a token's price fluctuates after being deposited in an automated market maker with a liquidity pool as part of yield farming, an investing strategy in which one lends tokens to receive incentives. This has been viewed as one of DeFi's biggest vulnerabilities (not the same as staking).

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According to Markus Thielen, chief investment officer of digital-asset management company IDEG, it's also one of the reasons institutional investors have been treading carefully in the DeFi area.

According to Thielen, speaking to Cointelegraph, "the danger of temporary loss is too large," hence his company and other institutional investors "have been less engaged with automated market makers (AMMs)."

"I must concede that the Trader Joe's v2 whitepaper presents a fresh notion, and liquidity providers have generated 30bps for enabling trades, which is an alluring return given that the industry's future development is uncertain. We are interested in finding out how much liquidity v2 is now attracting and how Trader Joe's TVL will develop.

According to Thielen, investors should look for alternative investments with strong fundamentals rather than relying solely on blue-chip assets to gain a competitive edge in the digital asset sector:

We congratulate the Trader Joe team for continuing to innovate and for keeping other AMM on their toes because, as a crypto fund, we can't only rely on ETH and BTC. We want other layer ones and alt coins to thrive.

The article claims that Trader Joe's Liquidity Book (LB) is a particular kind of liquidity pool (LP) that divides the liquidity of a pair of assets into price bins that are traded at a fixed price.

In order to better manage liquidity in reaction to abrupt price changes, the LB adopts a new variable swap fee that is intended to shield traders from temporary loss by compensating LPs in the event of significant market volatility.

In order to provide traders with better buying rates, Trader Joe's LB will also provide zero to low slippage trades.

This could constitute a huge advancement in DeFi if done correctly. According to a recent survey, almost 50% of Uniswap v3 LPs experience financial losses during volatile market conditions since temporary losses outweighed swap fees.

After the first 100 days, Thorchain, another DeFi protocol, offers temporary loss protection for LP deposits (with partial protection before that point).

The Avalanche smart contract platform serves as the foundation for the Trader Joe protocol, which bills itself as a "one-stop decentralized trading platform."

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With $191 million in total value locked (TVL) on the protocol, it is the largest decentralized exchange (DEX) available on Avalanche at the moment.

Users can trade, farm, lend, and stake via the DeFi protocol, among other things.

The price of the Trader Joe's token, JOE, briefly increased after the publication of the white paper; it is currently trading at $0.28, according to CoinMarketCap, although it is still down 94.5% from its all-time high.