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How Does “Impermanent Loss” in a DEX Liquidity Pool Relate to the Effective Cost of Trading (Spread)?

LPs are compensated for Impermanent Loss via trading fees, which are the effective spread cost to the trader.
Greeks.Live11.11.25

How Does “Impermanent Loss” in a DEX Liquidity Pool Relate to the Effective Cost of Trading (Spread)?

Impermanent Loss is the temporary loss of funds a liquidity provider (LP) experiences when the price of their deposited assets changes compared to simply holding them. While not a direct trading spread, LPs need compensation for this risk.

The trading fees charged by the AMM are their compensation, which effectively acts as a spread cost to the trader, as it is factored into the total cost of the trade.

How Does the ‘Fee Structure’ Differ between a Centralized Exchange (CEX) and a Decentralized Exchange (DEX) AMM?
How Are Block Producers Compensated for Their Work?
How Is the Risk Taken by a Market Maker Compensated through the Spread?
What Is Impermanent Loss and How Does It Relate to Providing Liquidity for Options?

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