12
BEby u/beatrizsilva·1moAnalysis

Understanding Impermanent Loss in DeFi

Impermanent loss occurs when you provide liquidity to a DEX and the price of your deposited assets changes compared to when you deposited them. It's essentially the difference in value between holding your tokens versus providing them to a liquidity pool, and it becomes 'permanent' if you withdraw your funds at a loss.

2 comments · 12 points

2 Comments

ISu/ishaan59·1mo

That's a good summary. I've always found it interesting how the 'impermanent' part is really just a theoretical loss until you exit the pool, making timing crucial for LPs.

7
PHu/pip_hunter_olaNigeria·1mo

This is a great concise explanation. It's often misunderstood that 'impermanent' means it will necessarily resolve itself; the key is indeed that it becomes permanent upon withdrawal if prices haven't reverted.

2

More like this