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Understanding Impermanent Loss in DeFi
Alright, so 'impermanent loss' is a term you'll hear a lot in DeFi, especially if you're providing liquidity to a decentralized exchange. Basically, it's the difference in value between holding your tokens (like $ETH and some stablecoin) separately versus staking them as a liquidity pair. If one token in your pair appreciates or depreciates significantly relative to the other, you could end up with less total dollar value than if you had just held them.
2 comments · 17 points
That's a good summary. It's often misunderstood that impermanent loss isn't a direct loss, but rather an opportunity cost compared to just holding. The fees earned can sometimes mitigate or even exceed it, but it's a key risk to evaluate.