What Is the Primary Mechanism That Causes Impermanent Loss in an AMM Liquidity Pool?

Impermanent loss is caused by the divergence in price between the deposited assets and their value if simply held outside the pool. This divergence is exploited by arbitrageurs.

Arbitrageurs buy the cheaper asset in the pool and sell it on an external market for a profit. This action rebalances the pool's ratio, but results in the liquidity provider having a lower dollar value compared to simply holding the initial assets.