Why Is a Sudden, Large Price Change More Detrimental than a Gradual One for Impermanent Loss?
The magnitude of impermanent loss is determined solely by the final divergence of the price ratio from the initial deposit ratio, not the speed of the change. Therefore, a sudden, large price change is detrimental because it immediately results in a large price divergence.
A gradual change reaching the same final divergence would result in the same total impermanent loss. However, a sudden change might mean less time for fees to accumulate to offset the loss.
Glossar
Large Price Change
Volatility ⎊ Significant price fluctuations, particularly within cryptocurrency markets and derivatives, represent a core challenge for risk management and trading strategy.
Impermanent Loss
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.
Sudden Change
Disruption ⎊ The term "Sudden Change" within cryptocurrency, options trading, and financial derivatives signifies an abrupt and substantial deviation from established market trends or anticipated price movements.