Explain the Concept of “Single-Asset Exposure” When a Concentrated Position Moves out of Range.
When the price of a token pair moves beyond an LP's upper price limit, all of their liquidity is converted into the less valuable token (the one that has fallen in price relative to the other). Conversely, if the price drops below the lower limit, all liquidity is converted into the more valuable token.
In either case, the LP holds 100% of a single asset, and they stop earning fees. This single-asset exposure means the LP is fully exposed to the price risk of that single asset, magnifying the impermanent loss.
