RISKS & SECURITY
Impermanent Loss
Definition
Impermanent loss occurs when providing liquidity to automated market makers (AMMs) and the price ratio of your deposited tokens changes compared to when you deposited them. The loss is 'impermanent' because it only becomes permanent when you withdraw your liquidity.
Example
Example
If you provide ETH/USDC liquidity at 1 ETH = $2000, but ETH rises to $3000, you'll have less ETH and more USDC when you withdraw, missing some of ETH's gains.
Risks to Consider
Risks
- Price divergence risk
- Opportunity cost
- Market volatility exposure
Common Questions
Why impermanent? It it a loss or not?
Technically, you haven't lost anything until your terminate your LP position, since that even with sizable IL, if the price recover, IL turns into IG.
How can I minimize impermanent loss?
Choose stable pairs, use concentrated liquidity ranges carefully, or consider single-sided staking instead of providing liquidity to volatile pairs.
