How Is ‘Impermanent Loss’ Calculated in a Standard AMM Liquidity Pool?

Impermanent loss (IL) is the difference in value between simply holding the assets in a wallet versus depositing them into an AMM liquidity pool. It occurs when the price of the deposited assets changes relative to each other.

It is calculated using a formula based on the price ratio change, showing the opportunity cost. It is a form of risk, not direct slippage, but it is a core cost of providing liquidity in the AMM system.