Does a Return of the Token Prices to Their Original Ratio Eliminate the Impermanent Loss?
Yes, if the ratio of the two token prices returns exactly to the ratio that existed at the moment the liquidity was deposited, the impermanent loss is fully eliminated. At this point, the value of the assets held in the pool would be exactly equal to the value of the assets if they had been simply held outside the pool.
This is the reason the loss is called "impermanent" ⎊ it is unrealized and reversible.
Glossar
Token Prices
Valuation ⎊ Token prices represent the current market value of a specific cryptocurrency asset, determined by supply and demand dynamics on various exchanges.
Return
Yield ⎊ Return, within cryptocurrency and derivatives, quantifies the profit or loss realized on an investment relative to its cost, often expressed as a percentage or ratio, and is fundamental to evaluating strategy performance.
Impermanent Loss
LiquidityRisk ⎊ Impermanent Loss quantifies the temporary divergence in value between holding assets in a decentralized liquidity pool versus simply holding those same assets in a non-interest-bearing wallet, resulting from price movements between the deposited pair.