101: Core Concepts

Impermanent Loss

The risk of the diverging value of assets in a liquidity pool.


Impermanent Loss

Introduction to Impermanent Loss

101 Level Core Concepts Course

Impermanent loss refers to the potential loss that can occur when providing liquidity to a trading pair on a decentralized exchange (DEX). When a DEX is being used to trade assets, liquidity providers (LPs) play a key role in facilitating trades by providing assets to the DEX's trading pool. However, when the prices of the assets in a particular trading pair change, LPs may incur a loss as a result of providing liquidity. This loss is also called divergent loss, and it is caused by the difference in the value of the assets in the trading pair over time.

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