How Does a Weighted AMM (E.g. Balancer) Manage Impermanent Loss for Multi-Asset Pools?

A weighted AMM allows for pools with more than two assets and non-50/50 weightings (e.g. 80/20).

The impermanent loss is calculated based on the divergence of the price ratio and the pool's weightings. If one asset's price rises, the loss is mitigated because the pool holds less of that asset (e.g. in an 80/20 pool).

This structure reduces exposure to the volatility of a single asset, making it useful for pairing a volatile governance token with a stable asset.