What Market Conditions Exacerbate Impermanent Loss?

Impermanent loss is exacerbated by high volatility and significant divergence in the price ratio of the two assets in the pool. Stablecoin-to-stablecoin pairs minimize IL because their price ratio is near constant.

Conversely, a volatile asset paired with a stablecoin or another volatile asset during a sharp price movement will incur higher IL. The longer the price ratio stays divergent, the greater the potential for loss.