What Are the Mechanics of Impermanent Loss Insurance Protocols and What Are Their Limitations?

Impermanent loss insurance protocols typically require users to pay a premium to cover potential losses. In return, the protocol promises to reimburse the user for any impermanent loss incurred after a certain period.

The limitations are numerous: premiums can be expensive, coverage may be capped, and payouts are often not guaranteed, especially during extreme market volatility. Furthermore, many of these protocols are new and may have smart contract vulnerabilities or unsustainable tokenomics.