Does the Weighting of Assets in a Multi-Asset Pool Directly Correlate to the Share of Impermanent Loss Attributed to Each Asset?
No, the weighting does not directly correlate to the share of impermanent loss in a simple way. The impermanent loss is a function of the relative price changes of all assets in the pool.
A higher-weighted asset will have a greater influence on the pool's overall value. However, the magnitude of IL is driven by the divergence of the lower-weighted, more volatile assets against the more stable, higher-weighted assets.
A small, volatile asset can be the primary driver of IL for the entire pool, even with a low weighting.
Glossar
Multi-Asset Pool
Construction ⎊ A Multi-Asset Pool represents a portfolio strategy employing diverse financial instruments, extending beyond traditional single-asset class allocations, and is increasingly utilized within cryptocurrency markets to mitigate idiosyncratic risk.
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.