What Is the Concept of "Impermanent Loss" in AMM Liquidity Provision? ▴ Learn

What Is the Concept of “Impermanent Loss” in AMM Liquidity Provision?

Impermanent Loss (IL) is the temporary loss of funds a liquidity provider (LP) experiences due to the price change of their deposited assets compared to simply holding them in their wallet. It is called "impermanent" because the loss only becomes permanent if the LP withdraws their funds before the asset prices return to their original deposit ratio.

It represents an opportunity cost for the LP.

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What Is the Concept of Impermanent Loss in Liquidity Provision?