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What Is “Impermanent Loss” and How Is It Related to Transaction Costs for Liquidity Providers?

Impermanent loss is a potential opportunity cost for LPs; the transaction fees they earn are the primary compensation to offset this risk.
Greeks.Live18.11.25

What Is “Impermanent Loss” and How Is It Related to Transaction Costs for Liquidity Providers?

Impermanent loss is the temporary, unrealized loss a liquidity provider (LP) faces when the price of their deposited assets changes compared to simply holding them in a wallet. It is not directly a transaction cost, but it affects the LP's overall profitability.

LPs earn transaction fees to compensate for potential impermanent loss. High transaction costs can deter new LPs, but the fees LPs earn are their main offset against this loss.

Is Impermanent Loss a Guaranteed Loss for an LP?
How Does “Impermanent Loss” in a DEX Liquidity Pool Relate to the Effective Cost of Trading (Spread)?
How Do Liquidity Providers (LPs) in a DEX Earn Fees?
How Are Block Producers Compensated for Their Work?

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