Ads end in 20 seconds
This content is free thanks to our sponsors
Sponsored Ad – I may earn a commission if you click and buy
Crypto
Impermanent Loss
The temporary loss of value that liquidity providers can experience when the price of the tokens in a pool changes.
Impermanent loss is the main risk of providing liquidity on DEXes. The bigger the price swing, the higher the potential loss (though you still earn trading fees that can offset it). Many farmers calculate IL before adding funds.
Some newer protocols offer IL protection to attract more liquidity.
It's the cost of being the one who holds both sides of the trade while the price moves.
Real world: You add equal amounts of ETH and USDC to a pool. If ETH price doubles, the pool automatically sells some of your ETH for USDC. When you withdraw you might have less total value than if you had just held the coins — that's impermanent loss.
💡 Always calculate impermanent loss before becoming a liquidity provider — the fees might not always cover it.