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What Is “Impermanent Loss” in Liquidity Provision?

Loss vs. Holding. Price Divergence. Arbitrage Causes IL. Permanent Upon Withdrawal 27.
Greeks.Live18.11.25

What Is “Impermanent Loss” in Liquidity Provision?

Impermanent Loss (IL) is the temporary loss of funds experienced by a liquidity provider (LP) when the price of the deposited assets changes compared to simply holding them in a wallet. It is "impermanent" because it only becomes permanent if the LP withdraws the assets.

IL occurs due to arbitrageurs adjusting the pool ratio to match the external market price.

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