In What Scenarios Is Impermanent Loss Converted into Permanent Loss for a Liquidity Provider?

Impermanent loss becomes permanent when a liquidity provider (LP) withdraws their assets from the pool. While the loss is unrealized (impermanent) as long as the assets remain in the pool, the act of withdrawal locks in the current value difference compared to simply holding the original assets.

Furthermore, if one of the paired tokens suffers a catastrophic failure, such as a complete loss of peg or a rug pull, the LP will be left holding a disproportionate amount of the now worthless token, making the loss permanent and severe.