What is Impermanent loss?
The gap between supplying liquidity and simply holding the two assets as prices diverge.
Because a pool rebalances as prices move, a provider ends up holding more of the falling asset and less of the rising one. The loss is measured against just holding the pair.
Fees and incentives can outweigh it; often they do not during a big move. 'Impermanent' only means it may reverse if prices return to their starting ratio.
Related terms
- Liquidity poolDeFi
Tokens locked in a contract that traders swap against, earning the pool's fee share.
An exchange that prices trades with a formula and pooled liquidity instead of an order book.
- SlippageTrading
The difference between the price you expected and the price you got, from moving the book yourself.