What Is ‘Impermanent Loss’ in the Context of Providing Liquidity?

Impermanent loss is the temporary loss of funds a liquidity provider experiences due to the price change of their deposited assets compared to simply holding them in their wallet. It occurs when the ratio of the tokens in the pool changes significantly.

The loss is 'impermanent' because if the asset prices return to their original deposit ratio, the loss disappears. It is realized upon withdrawal.