How Is the Concept of Impermanent Loss Analogous to Being Short Volatility in Traditional Finance?

Impermanent loss is analogous to being short volatility because a liquidity provider profits most when the prices of the pooled assets remain relatively stable or move in tandem. When asset prices diverge significantly (high volatility), the impermanent loss increases.

In traditional finance, a short volatility position, such as a short straddle or strangle, profits from low price movement and loses money when the underlying asset's price moves sharply in either direction.