How Does JIT Liquidity Specifically Minimize the Risk of Impermanent Loss for the LP? ▴ Learn

How Does JIT Liquidity Specifically Minimize the Risk of Impermanent Loss for the LP?

Impermanent Loss (IL) occurs when the price ratio of deposited assets changes after a deposit, causing the value of the assets in the pool to be less than if they were simply held in a wallet. JIT Liquidity LPs minimize this risk by providing liquidity for only a fleeting moment ▴ just long enough to capture the fees from a known, large trade.

Since the LP immediately withdraws the liquidity after the trade, they are exposed to the price change for a minimal duration, effectively eliminating the long-term risk of IL.

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