DeFi & Yield

What is impermanent loss and how does it happen?

Impermanent loss is the gap between holding tokens in a liquidity pool versus simply holding them in your wallet, caused by the pool rebalancing as prices move. When one token in a pair rises sharply, the pool's formula sells some of it to maintain balance, leaving you with less of the appreciating asset. For example, if ETH doubles while paired with a stablecoin, your pool position is worth less than if you had held the ETH outright. It is called impermanent because it reverses if prices return, but fees earned may or may not offset it.

Crypto investments are subject to market risk and volatility. Past performance is not indicative of future returns. This is general information, not investment advice — consider your own circumstances or consult a qualified adviser before investing.