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What Role Do Transaction Fees Play in Offsetting Impermanent Loss for a Liquidity Provider?

Transaction fees can offset IL; high volume and fee accrual are necessary for a positive net return over the HODL value.
Greeks.Live20.11.25

What Role Do Transaction Fees Play in Offsetting Impermanent Loss for a Liquidity Provider?

Transaction fees earned by the liquidity provider (LP) serve as compensation for the risk of impermanent loss. Over time, if the trading volume is high and the fee accrual is significant, the total fees earned can potentially exceed the value lost due to impermanent loss.

The LP's net return is the value of their withdrawn tokens plus accumulated fees, minus the HODL value. Fees are crucial for a positive net outcome.

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