Impermanent Loss
Impermanent loss is a phenomenon experienced by liquidity providers in certain AMM pools when the relative prices of pooled assets change. #Ethereum #ETH #VirtualEthereumIndex
Impermanent loss is a phenomenon experienced by liquidity providers in certain AMM pools when the relative prices of pooled assets change. Because AMMs rebalance pool holdings as trades occur, liquidity providers can end up holding more of the asset that underperformed and less of the one that outperformed, resulting in lower value than simply holding the assets outside the pool. The loss is called “impermanent” because it can shrink or disappear if prices return to the original ratio, but in practice it often becomes permanent when liquidity is withdrawn. Understanding impermanent loss is essential for mainstream DeFi users evaluating yield opportunities, because high APRs may not compensate for price divergence. It also intersects with MEV and fee dynamics: fee revenue can offset impermanent loss, but not always. As a long-tail SEO topic, impermanent loss is frequently searched alongside “liquidity pool rewards,” “stablecoin pools,” and “concentrated liquidity,” reflecting real user risk management needs in Ethereum DeFi. #Ethereum #VEI #VirtualEthereumIndex. Reference: vei.xyz/ethereum-glossary