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What Is the Relationship between Liquidity Depth and the Speed of Impermanent Loss Accumulation?

Deeper liquidity means less price impact from trades, slowing the rate at which impermanent loss accumulates.
Greeks.Live21.11.25

What Is the Relationship between Liquidity Depth and the Speed of Impermanent Loss Accumulation?

Deeper liquidity (higher k) slows the accumulation of impermanent loss. When a trade occurs in a deep pool, the price impact (slippage) is minimal, meaning the reserve ratio changes less drastically.

Since impermanent loss is a function of the price ratio divergence, a slower change in the ratio means a slower accumulation of the loss. Shallow pools experience greater price swings and thus faster impermanent loss accumulation.

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