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What Is “Impermanent Loss” in the Context of AMMs and Liquidity Provision?

Impermanent loss is the temporary loss of value when the price ratio of tokens in an AMM pool diverges from the initial deposit ratio.
Greeks.Live10.11.25

What Is “Impermanent Loss” in the Context of AMMs and Liquidity Provision?

Impermanent loss is the temporary difference in value between holding tokens in an Automated Market Maker (AMM) liquidity pool versus simply holding them in a wallet. It occurs when the price ratio of the tokens in the pool changes after the deposit.

The loss is "impermanent" because it can be reversed if the token prices return to their initial ratio. However, if the price divergence is permanent, the loss becomes permanent, a key risk for liquidity providers.

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