Does Impermanent Loss Occur If Both Tokens’ Prices Double Simultaneously?
No, impermanent loss does not occur if both tokens' prices double simultaneously, because the price ratio between the two tokens remains unchanged. Impermanent loss is solely a function of the divergence in the price ratio from the time of deposit.
If the ratio is constant, the pool rebalancing mechanism does not trigger, and the LP's portfolio value relative to a hold strategy is identical.
Glossar
Price Volatility
StatisticalMeasure ⎊ Price Volatility is the quantifiable rate at which the price of a cryptocurrency fluctuates over a given period, measured statistically by standard deviation or variance of returns.
Pool Rebalancing
Adjustment ⎊ In cryptocurrency derivatives and options trading, pool rebalancing represents a strategic process undertaken by decentralized protocols or centralized entities managing liquidity pools.
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.
Price Ratio
Ratio ⎊ A price ratio is a quantitative metric used to compare the value of one asset relative to another.
Portfolio Value
Calculation ⎊ This value is derived from the summation of the current market price of all underlying cryptocurrency holdings, adjusted by the net value of all open derivative positions, including the mark-to-market value of options.
Flash Loan
Mechanism ⎊ A flash loan is a unique, uncollateralized loan mechanism in decentralized finance that allows users to borrow assets for a very short duration, typically within a single blockchain transaction.