How Does Providing Liquidity in a Stablecoin-Pegged Asset Pool Reduce but Not Eliminate Impermanent Loss?
Providing liquidity to a stablecoin-pegged asset pool, such as USDC-DAI, significantly reduces impermanent loss because the prices of the two assets are designed to be highly correlated. However, it does not eliminate the risk entirely.
De-pegging events, where a stablecoin loses its 1:1 peg to its underlying asset, can cause significant price divergence and lead to substantial impermanent loss. Even minor deviations from the peg can result in small, but non-zero, impermanent loss over time.
