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How Does ‘Impermanent Loss’ in DeFi Relate to a Market Maker’s Inventory Risk?

Impermanent loss is the core inventory risk for DeFi market makers, representing a loss relative to passively holding the deposited assets.
Greeks.Live11.11.25

How Does ‘Impermanent Loss’ in DeFi Relate to a Market Maker’s Inventory Risk?

Impermanent loss (IL) is the difference in value between holding tokens in an Automated Market Maker (AMM) liquidity pool versus simply holding them in a wallet. For a DeFi market maker (liquidity provider), IL is the core inventory risk.

If the price of the deposited assets diverges significantly, the value of the LP tokens can be less than the initial deposit, representing a loss relative to a passive holding strategy.

What Is “Inventory Risk” for a Market Maker in a Volatile Derivatives Market?
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What Is “Impermanent Loss” in the Context of DeFi Liquidity Pools?

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