What is Impermanent loss?

The temporary loss a liquidity provider suffers when the price ratio of their pooled tokens diverges from when they deposited.

How it works

Providing liquidity earns fees but exposes you to price movement: if one token moons relative to the other, your LP position underperforms just holding. It's impermanent because it can recover if prices reconverge.

Example

In practiceYou deposit ETH and USDC; ETH doubles. Your LP position is now worth less than if you'd just held the ETH — the divergence cost.

Is impermanent loss permanent?

Only if you withdraw while prices are diverged. If they reconverge, the loss shrinks — but fees must outweigh it to be worth it.

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