Impermanent Loss
DeFi
Value loss from price divergence while providing liquidity.
Impermanent loss happens when prices move apart for the assets in a pool. The AMM rebalances your holdings, which can be worth less than holding the assets separately. Fees and incentives can help but do not guarantee a net gain.
Frequently asked questions
When does impermanent loss occur?
When the price ratio of pooled assets changes. The pool rebalances, and your share can be worth less than holding.Can fees offset it?
Yes. Trading fees and incentives can offset IL, but not always. Evaluate net returns over time.How can I reduce IL?
Provide liquidity to correlated pairs or use concentrated ranges. Consider single sided pools where available.