What is impermanent loss?

Impermanent loss is a risk that is associated with being a liquidity provider to a decentralized exchange. It happens when the price of the tokens change compared to when you deposited them into a liquidity pool on a decentralized exchange. The larger the change is, the bigger the loss.

Note that, you don’t actually have to lose money for impermanent loss to occur. Rather, your gains could just be smaller than the gains from a buy and hold strategy would have been.

The reason people provide liquidity to a liquidity pool is because it can be a very profitable venture, but they run the risk need of impermanent loss.

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: