DAPP Network is spearheading impermanent loss protection on Bancor. $DAPP tokens are offered to cover the losses incurred by LPs. This concept provides insurance and removes risk associated with matching liquidity for small-cap projects.
"External impermanent loss protection could be the solution. DeFi could offer their own coins to cover the losses incurred by LPs, with the DEX’s own insurance kicking in once these reserves had been depleted. This would remove the risks the exchange is facing by leaving it up to its partner to deal with the insurance, thus enabling them to make the liquidity pool larger. It would also reward those investing into the DeFi project by paying them in the token they wanted in the first place. The approach is spearheaded by the DAPP Network, which recently approached Bancor with the proposal to provide external IL protection in what could potentially set the benchmark for similar initiatives in the future. Should this initiative take off, Bancor may want to consider a native implementation allowing DeFi projects to provide tokens for their respective impermanent loss protection pools without having to develop and deploy a smart contract for that."