Define 'Impermanent Loss' in the Context of DAO Treasury Management ▴ Learn

Define ‘Impermanent Loss’ in the Context of DAO Treasury Management.

Impermanent loss (IL) is the temporary loss of funds a liquidity provider (LP) experiences when the price of their deposited assets changes compared to simply holding them in a wallet. It occurs because the automated market maker (AMM) formula forces the LP to sell the asset that goes up and buy the asset that goes down.

For a DAO treasury providing liquidity, this loss can become permanent if not offset by trading fees.

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