Skip to main content
Learn

What Is the Primary Mechanism That Causes Impermanent Loss?

Arbitrageurs exploit price differences between the pool and external markets, rebalancing the pool and causing the loss.
Greeks.Live20.11.25

What Is the Primary Mechanism That Causes Impermanent Loss?

Impermanent loss is primarily caused by arbitrage trading between the decentralized exchange (DEX) liquidity pool and external markets. When a token's price changes on an external exchange, arbitrageurs trade with the liquidity pool to bring its internal price back in line with the external market price.

This rebalancing process is what leaves the liquidity provider with a less valuable portfolio than simply holding the assets.

How Do Arbitrageurs Exploit Price Differences between the Spot and Physically-Settled Futures Markets?
Can Latency Differences Be Exploited in a Cross-Exchange Arbitrage Strategy?
What Is ‘Impermanent Loss’ for a Liquidity Provider in a Smart Contract-Based DEX Pool?
Explain the Role of “Arbitrageurs” in Keeping the AMM Price Aligned with Centralized Exchange Prices

About

Contact

Editorial Policy

Terms of Service

Privacy Policy

Cookie Policy

© 2025 Greeks.Live

All Rights Reserved

Greeks.Live RFQ

Build by Noo on Engine

Source: The content on this website is produced by Greeks.live's proprietary analysis systems, which utilize advanced Large Language Models (LLMs). This information might not be subject to a full human review before publication and may contain errors.
Responsibility: You should not make any financial decisions based solely on the content presented here. We strongly urge you to conduct your own rigorous due diligence and to consult a qualified, independent financial advisor.
Purpose: All information is intended for informational purposes only. It should not be construed as financial, investment, trading, or any other form of professional advice. News and data are not trading signals.
Risk: The cryptocurrency, derivatives, and options markets are highly volatile and carry significant risk. By using this site, you acknowledge these risks and agree that Greeks.live and its affiliates are not responsible for any financial losses you may incur.