How Does Impermanent Loss Relate to a DAO’s Strategy of Providing Liquidity with Its Native Token?

Impermanent loss (IL) is the temporary loss of funds a DAO experiences when providing two assets to a liquidity pool and the price ratio of those assets changes. The loss is "impermanent" because it is only realized if the DAO withdraws the assets before the prices revert to the original ratio.

For a DAO providing its native token, high IL means the value of the LP tokens can be less than simply holding the initial assets, reducing the effectiveness of its yield strategy.