Why Is Pairing a Highly Volatile Token with a Stablecoin Considered a High-Risk Strategy for Impermanent Loss?

Impermanent loss is a function of the price divergence between the two pooled assets. When a highly volatile token is paired with a stablecoin, the stablecoin's price is expected to remain constant, meaning all price movement must come from the volatile asset.

Any significant movement in the volatile asset's price, up or down, creates a large divergence from the stablecoin's price. This large, one-sided divergence results in a high degree of impermanent loss for the liquidity provider.