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What Is “Impermanent Loss” in the Context of DeFi Smart Contracts, and How Do L2s Indirectly Mitigate It?

Impermanent loss is a temporary loss from price divergence. L2s allow cheaper, faster LP management to mitigate exposure.
Greeks.Live08.11.25

What Is “Impermanent Loss” in the Context of DeFi Smart Contracts, and How Do L2s Indirectly Mitigate It?

Impermanent loss (IL) is the temporary loss of funds a liquidity provider (LP) experiences when the price of their deposited assets changes compared to simply holding them in a wallet. L2s do not directly eliminate IL.

However, by making rebalancing and complex LP strategies cheaper and faster, L2s allow LPs to actively manage their positions, withdraw, or adjust their ranges more efficiently, thus reducing exposure to significant IL.

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