How Can High Trading Fees Fully Offset a Moderate Impermanent Loss? ▴ Learn

How Can High Trading Fees Fully Offset a Moderate Impermanent Loss?

Trading fees are continuously accrued by LPs as a percentage of the volume traded in the pool. If the total accumulated fees over the holding period are greater than the unrealized impermanent loss, the LP will realize a net profit upon withdrawal.

This typically requires a high volume-to-liquidity ratio in the pool, meaning many trades are happening relative to the total capital. The fee earnings act as a buffer against the price divergence loss.

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