What Is ‘Impermanent Loss’ for a Liquidity Provider in a Smart Contract-Based DEX Pool?
Impermanent loss is the temporary loss of funds a liquidity provider experiences when the price of their deposited assets changes compared to simply holding them outside the pool. This loss occurs because the AMM's smart contract automatically rebalances the pool to maintain the constant product formula.
The loss is 'impermanent' because it only becomes permanent if the provider withdraws their assets at that time.
