What Is the Difference between Impermanent Loss and Transaction Fee Income for a Liquidity Provider?

Impermanent loss is the opportunity cost or divergence loss ▴ the difference in value between holding the assets in the pool versus simply holding them in a wallet. It is a potential loss in capital value.

Transaction fee income is the actual revenue earned by the liquidity provider from the trading volume that occurs in the pool. Fees are a positive cash flow that directly compensates the LP for providing liquidity and bearing the risk of impermanent loss.

The net profitability for an LP is the fee income minus the impermanent loss.