What Is Impermanent Loss?

When you provide liquidity to a DEX, price moves can leave you worse off than simply holding — that gap is impermanent loss.

Why You "Lose"

In an automated market maker (AMM) pool you deposit two tokens (e.g., ETH/USDC). When ETH rises sharply, arbitrageurs buy ETH out of the pool and add USDC, leaving you with less ETH and more USDC. Your total value ends up lower than if you had simply held both tokens — that gap is impermanent loss.

Why "Impermanent"

If prices return to the ratio at deposit, the loss disappears — hence "impermanent." But if prices never come back, the loss becomes permanent. The key question: do the fees and rewards from providing liquidity cover the potential impermanent loss? The more volatile the pair, the higher the risk.