Risks

Impermanent Loss

Impermanent loss is a phenomenon that affects LPs in AMMs when the relative prices of the assets in the liquidity pool change (without loss protection such as hedging, LPs are technically holding long positions on pool assets). This loss occurs when the value of assets held in the liquidity pool diverges from what would have been obtained by simply holding the assets. The term “impermanent” is used because the loss is not permanent (yet); it only becomes realized when LPs withdraw their funds from the pool, or when rebalance occurs.