# What Is the Relationship between Impermanent Loss and High Volatility? ⎊ Path

**Published:** 2025-12-05
**Author:** Greeks.live
**Categories:** Path

---

## What Is the Relationship between Impermanent Loss and High Volatility?

Impermanent loss is directly proportional to the magnitude of the price divergence between the two tokens in the pool. High volatility increases the probability and magnitude of this price divergence, thereby increasing the risk and potential size of impermanent loss.

Pools with highly correlated assets (like stablecoins) have lower IL risk, while pools with volatile, uncorrelated assets have higher IL risk.

- [Why Is a Sudden, Large Price Change More Detrimental than a Gradual One for Impermanent Loss?](https://learn.greeks.live/path/why-is-a-sudden-large-price-change-more-detrimental-than-a-gradual-one-for-impermanent-loss/)

- [What Is the Relationship between the Strike Price and the Expiration Date on an Option’s Time Value?](https://learn.greeks.live/path/what-is-the-relationship-between-the-strike-price-and-the-expiration-date-on-an-options-time-value/)

- [Does the Magnitude of Backwardation Affect the Trade’s Risk Profile?](https://learn.greeks.live/path/does-the-magnitude-of-backwardation-affect-the-trades-risk-profile/)

- [What Is “Divergence Loss” and How Is It Related to Impermanent Loss?](https://learn.greeks.live/path/what-is-divergence-loss-and-how-is-it-related-to-impermanent-loss/)

- [What Factors Determine the Magnitude of Impermanent Loss for a Liquidity Provider?](https://learn.greeks.live/path/what-factors-determine-the-magnitude-of-impermanent-loss-for-a-liquidity-provider/)

- [How Does the Concept of “Divergence Loss” Relate to Impermanent Loss?](https://learn.greeks.live/path/how-does-the-concept-of-divergence-loss-relate-to-impermanent-loss/)

- [What Is the Relationship between Open Interest and Funding Rate Magnitude during Volatility?](https://learn.greeks.live/path/what-is-the-relationship-between-open-interest-and-funding-rate-magnitude-during-volatility/)

- [Explain How Implied Volatility Affects the Magnitude of the Premium Difference](https://learn.greeks.live/path/explain-how-implied-volatility-affects-the-magnitude-of-the-premium-difference/)

## Glossar

### [Price Divergence](https://learn.greeks.live/area/price-divergence/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Discrepancy ⎊ Price Divergence occurs when the quoted price of an asset or derivative across two different venues or instruments deviates significantly from their theoretical parity relationship, creating an arbitrage opportunity.

### [High Volatility](https://learn.greeks.live/area/high-volatility/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Instability ⎊ High volatility in cryptocurrency, options, and derivatives signifies amplified and accelerated price movements, exceeding historical norms and creating substantial risk exposures for market participants.

### [Impermanent Loss](https://learn.greeks.live/area/impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

LiquidityRisk ⎊ Impermanent Loss quantifies the temporary divergence in value between holding assets in a decentralized liquidity pool versus simply holding those same assets in a non-interest-bearing wallet, resulting from price movements between the deposited pair.

### [Uncorrelated Assets](https://learn.greeks.live/area/uncorrelated-assets/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)

Diversification ⎊ Uncorrelated assets, within cryptocurrency, options, and derivatives, represent instruments exhibiting low or negative statistical correlation to prevailing market factors, offering portfolio resilience.

## Discover More

### [Explain the Concept of "Concentrated Liquidity" and Its Impact on Impermanent Loss](https://learn.greeks.live/path/explain-the-concept-of-concentrated-liquidity-and-its-impact-on-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Explain the Concept of "Concentrated Liquidity" and Its Impact on Impermanent Loss](https://learn.greeks.live/wp-content/uploads/2025/10/Asymmetric-Dual-Winged-High-Frequency-Trading-Vector-Approaching-Lunar-Settlement-Derivatives-Horizon.webp)

CL increases capital efficiency in a set range but can lead to higher IL and no fee earnings if the price moves outside that range.

### [What Are the Risks and Costs Associated with Using Options to Hedge Impermanent Loss (E.g. Premium Decay)?](https://learn.greeks.live/path/what-are-the-risks-and-costs-associated-with-using-options-to-hedge-impermanent-loss-e-g-premium-decay/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Are the Risks and Costs Associated with Using Options to Hedge Impermanent Loss (E.g. Premium Decay)?](https://learn.greeks.live/wp-content/uploads/2025/10/X-Shaped-Intersecting-Digital-Ledger-Instruments-Reflecting-Implied-Volatility-Surface-Calibration.webp)

Hedging IL with options costs a premium and is risky due to time decay (theta) and potential drops in implied volatility.

### [How Do Dynamic Fees in an AMM Help Manage Volatility and Impermanent Loss?](https://learn.greeks.live/path/how-do-dynamic-fees-in-an-amm-help-manage-volatility-and-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Dynamic Fees in an AMM Help Manage Volatility and Impermanent Loss?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Protocol-Mechanism-Revealing-Impermanent-Loss-Mitigation-Strategy-Dynamics.webp)

Fees increase with volatility to compensate LPs for higher impermanent loss risk, and decrease during stability to attract volume.

### [How Does the Concept of "Divergence Loss" Relate to Impermanent Loss?](https://learn.greeks.live/path/how-does-the-concept-of-divergence-loss-relate-to-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does the Concept of "Divergence Loss" Relate to Impermanent Loss?](https://learn.greeks.live/wp-content/uploads/2025/10/Stochastic-Volatility-Equilibrium-Modeling-of-Decentralized-Finance-Option-Hedging-Instruments.webp)

Divergence loss is an alternative term for impermanent loss, emphasizing the price ratio deviation as the cause.

### [What Is the Relationship between Implied Volatility (IV) and Historical Volatility (HV)?](https://learn.greeks.live/path/what-is-the-relationship-between-implied-volatility-iv-and-historical-volatility-hv/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![What Is the Relationship between Implied Volatility (IV) and Historical Volatility (HV)?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Primitive-Architectures-Analyzing-Implied-Volatility-Surface-Structures.webp)

HV is past price movement; IV is the market's future volatility expectation derived from the option price.

### [How Does Slippage Affect the Execution of a Stop-Loss Order in High-Volatility Crypto Markets?](https://learn.greeks.live/path/how-does-slippage-affect-the-execution-of-a-stop-loss-order-in-high-volatility-crypto-markets/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does Slippage Affect the Execution of a Stop-Loss Order in High-Volatility Crypto Markets?](https://learn.greeks.live/wp-content/uploads/2025/10/Striated-Glass-Sphere-Knob-Reflecting-Diagonal-Bands-on-Black-Background-Cryptocurrency-Derivatives-Analysis.webp)

Slippage causes the actual sale price to be worse (lower) than the set stop price, especially during rapid market moves.

### [How Does an Oracle Price Feed Help Mitigate Arbitrage Opportunities and Impermanent Loss in Certain AMM Designs?](https://learn.greeks.live/path/how-does-an-oracle-price-feed-help-mitigate-arbitrage-opportunities-and-impermanent-loss-in-certain-amm-designs/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Does an Oracle Price Feed Help Mitigate Arbitrage Opportunities and Impermanent Loss in Certain AMM Designs?](https://learn.greeks.live/wp-content/uploads/2025/10/Decentralized-Finance-Mechanism-Representing-Atomic-Swap-Liquidity-Pool-Convergence-Under-Quantum-Entanglement.webp)

Oracles align the pool's internal price with the external market, reducing arbitrage incentives and subsequent impermanent loss.

### [How Do Liquidity Providers Mitigate the Risk of Impermanent Loss?](https://learn.greeks.live/path/how-do-liquidity-providers-mitigate-the-risk-of-impermanent-loss/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![How Do Liquidity Providers Mitigate the Risk of Impermanent Loss?](https://learn.greeks.live/wp-content/uploads/2025/10/Interoperable-Blockchain-Modularity-Traded-as-Structured-Digital-Asset-Settlement-Instruments.webp)

Mitigation involves selecting low-volatility pairs, earning high fees, or using specialized AMM designs and insurance mechanisms.

### [Define "Impermanent Loss" in Terms of the Price Movement and the Pool's Ratio Change](https://learn.greeks.live/path/define-impermanent-loss-in-terms-of-the-price-movement-and-the-pools-ratio-change/?utm_source=crypto.greeks.live&utm_medium=referral&utm_campaign=satellite)
![Define "Impermanent Loss" in Terms of the Price Movement and the Pool's Ratio Change](https://learn.greeks.live/wp-content/uploads/2025/10/Layered-Digital-Asset-Futures-Contracts-Structure-Revealing-Underlying-Blockchain-Consensus-Mechanisms.webp)

IL is the dollar value difference between the current LP holdings and simply holding the original assets, caused by the pool's ratio changing due to price divergence.

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**Original URL:** https://learn.greeks.live/learn/what-is-the-relationship-between-impermanent-loss-and-high-volatility/
