Impermanent Loss (IL)

What Is Impermanent Loss?

If you’ve been involved with DeFi at all, you have almost certainly heard this term thrown around. Impermanent loss happens when the price of your tokens changes compared to when you originally deposited them in the pool. The larger the change is, the bigger the loss.
Impermanent loss happens when you provide liquidity to a liquidity pool, and the price of your deposited assets changes compared to when you deposited them. The bigger this change is, the more you are exposed to impermanent loss. In this case, the loss means less dollar value at the time of withdrawal than at the time of deposit.
Pools that contain assets that remain in a relatively small price range will be less exposed to impermanent loss. Stablecoins or different wrapped versions of a coin, for example, will stay in a relatively contained price range. In this case, there’s a smaller risk of impermanent loss for liquidity providers (LPs).