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How Does ‘Impermanent Loss’ Relate to the Risks of Providing Liquidity on a DEX?

Impermanent loss is the financial risk where a liquidity provider's portfolio value decreases compared to simply HODLing due to price changes.
Greeks.Live19.11.25

How Does ‘Impermanent Loss’ Relate to the Risks of Providing Liquidity on a DEX?

Impermanent loss (IL) is the temporary loss of funds a liquidity provider experiences due to the price change of their deposited assets compared to simply holding them in a wallet. It occurs because the automated market maker (AMM) protocol rebalances the pool to maintain the required ratio.

While not a security risk in the hacking sense, it is a significant financial risk that can erode a liquidity provider's capital.

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