Why Is the Loss Considered "Impermanent" before Withdrawal? ⎊ Path

Why Is the Loss Considered “Impermanent” before Withdrawal?

The loss is termed "impermanent" because it is only a theoretical loss compared to simply holding the assets outside the pool. If the price ratio of the deposited tokens eventually returns to the ratio it was at the time of deposit, the impermanent loss disappears.

However, if the tokens are withdrawn before the price ratio returns, the loss becomes permanent and realized.

What Is “Impermanent Loss” in the Context of AMMs and Liquidity Provision?

Why Is the Loss Termed “Impermanent” If the Token Ratio Is Permanently Changed by Arbitrage?

What Is the Risk of a CEX Processing a Withdrawal Too Quickly on an Unconfirmed Deposit?

What Is ‘Impermanent Loss’ in the Context of a Fungible Token Liquidity Pool?

Why Is the Initial Deposit of Liquidity Critical for Setting the Initial Value of “K”?

Is Impermanent Loss Ever Realized, and If So, When?

In What Scenario Is Impermanent Loss Actually Realized as a Permanent Loss for the Liquidity Provider?

What Is the Difference between Impermanent Loss and Actual Realized Loss for a Liquidity Provider?

Glossar

Impermanent Loss

Exposure ⎊ Impermanent loss, a risk inherent in automated market maker (AMM) protocols and liquidity provision, arises from price divergence between assets deposited and their subsequent value upon withdrawal.

Theoretical Loss

Valuation ⎊ Theoretical loss, within cryptocurrency options and financial derivatives, represents the anticipated decline in an instrument’s economic value based on prevailing market conditions and model parameters.