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How Does ‘Impermanent Loss’ Relate to Providing Liquidity on an AMM?

Impermanent loss is the temporary divergence in value between holding assets and providing them to a pool, a key risk for LPs.
Greeks.Live09.11.25

How Does ‘Impermanent Loss’ Relate to Providing Liquidity on an AMM?

Impermanent loss (IL) is the temporary loss of funds a liquidity provider experiences when the price of the deposited assets changes compared to simply holding them. It occurs because the AMM formula rebalances the pool to maintain the token ratio.

IL is a risk that must be offset by the trading fees earned, acting as a potential cost that influences the effective spread.

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