What Are the Limitations of This Formula in Predicting Real-World Losses for Liquidity Providers?

The standard impermanent loss formula is a theoretical model that ignores several real-world factors. It does not account for trading fees earned by the liquidity provider, which can offset the loss.

It also overlooks price impact and slippage caused by large trades, and it assumes continuous liquidity. Furthermore, the formula doesn't factor in external events like network congestion or smart contract risks that can affect a provider's ability to withdraw funds and realize their position's true value.