What is impermanent loss?

Impermanent loss occurs when the price of the tokens you’ve deposited into a liquidity pool changes compared to simply holding them in your wallet. Because the pool automatically rebalances assets during swaps, you may end up with a different token ratio than you started with. If one token rises or falls significantly in price, the value of your pooled assets can become lower than if you had just held the tokens. The loss is called “impermanent” because it can disappear if prices return to their original ratio. Swapping fees earned from the pool can partially or fully offset this loss, but not always. Liquidity providers should evaluate volatility before adding liquidity to avoid unwanted outcomes.

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