How Does Impermanent Loss in Liquidity Pools Affect the Secondary Token’s Stability?

Impermanent loss (IL) occurs when the price ratio of the deposited tokens changes. For a secondary token, especially one with lower liquidity or higher volatility, IL can force the pool's automated market maker (AMM) to sell more of it to maintain the 50/50 value ratio.

This selling pressure can amplify the downward price movement, potentially destabilizing the secondary token's price further relative to the primary, often more stable, token. The loss is realized only upon withdrawal.