What Is the Difference between Impermanent Loss and Actual Realized Loss for a Liquidity Provider?

Impermanent loss is the opportunity cost, representing the difference in value between holding the tokens in the pool versus simply holding them in a wallet (HODLing). It is "impermanent" because it can theoretically disappear if the tokens' price ratio returns to the ratio at the time of deposit.

A realized loss occurs only when the liquidity provider withdraws their tokens from the pool, locking in the lower value compared to the HODL strategy.