Impermanent loss
MarketsDefinition
A mathematical loss suffered by liquidity providers in AMMs when the prices of the pooled tokens diverge from the price ratio at deposit. Becomes "permanent" if the LP withdraws while prices are diverged.
Severe in volatile pairs (ETH/altcoin). Minimal in stablecoin-only pools (Curve). Trading fees compensate LPs for impermanent loss; whether they do so adequately depends on pool composition + volume.
Severe in volatile pairs (ETH/altcoin). Minimal in stablecoin-only pools (Curve). Trading fees compensate LPs for impermanent loss; whether they do so adequately depends on pool composition + volume.