Does a Stablecoin-to-Stablecoin Pool Eliminate Impermanent Loss?

A stablecoin-to-stablecoin pool, like USDC/DAI, significantly minimizes impermanent loss but does not completely eliminate it. Impermanent loss is caused by price divergence.

Since stablecoins are pegged to the same value (usually 1 USD), their ratio should remain near 1:1. However, if one stablecoin de-pegs, even slightly, impermanent loss will occur, albeit typically much smaller than in volatile asset pairs.