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How Do Trading Fees Mitigate the Impact of Impermanent Loss for Liquidity Providers?

Trading fees provide a yield that LPs use to offset the loss incurred from price divergence, potentially leading to a net profit.
Greeks.Live21.11.25

How Do Trading Fees Mitigate the Impact of Impermanent Loss for Liquidity Providers?

Liquidity providers (LPs) earn a percentage fee on every trade executed through the pool. These accrued fees act as a yield on the LP's deposited assets.

If the total fees earned over the period of providing liquidity exceed the value lost due to impermanent loss (the difference between holding and pooling), the LP will still achieve a net profit. Essentially, the trading fees are the compensation LPs receive for taking on the risk of impermanent loss.

What Is “Impermanent Loss” and How Is It Related to Transaction Costs for Liquidity Providers?
How Can the Trading Fees Earned in a Pool Offset the Effects of Impermanent Loss?
How Do Trading Fees Earned by the LP Offset the Effects of Impermanent Loss?
What Is the Incentive Structure for a Liquidity Provider (LP) in a Typical AMM?

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