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Explain the Concept of ‘Impermanent Loss’ in AMM Liquidity Pools

The temporary loss in value due to a change in the price ratio of the assets in the pool compared to holding them.
Greeks.Live05.11.25

Explain the Concept of ‘Impermanent Loss’ in AMM Liquidity Pools.

Impermanent loss (IL) occurs when the price ratio of deposited assets in a liquidity pool changes compared to simply holding the assets in a wallet. If the price of one token rises significantly, the AMM's rebalancing algorithm causes the liquidity provider to have fewer of the appreciated token.

The loss is 'impermanent' because it only becomes permanent if the provider withdraws the assets before the price ratio returns to the initial deposit ratio.

How Does Impermanent Loss Relate to Providing Liquidity for Derivative Trading on an AMM?
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