What is Impermanent Loss? DEFI Explained

Have you ever provided liquidity to a liquidity pool just to realise that some of your coins have gone missing? In this article, we’ll learn what “impermanent loss” is and how it can affect liquidity providers’ profits.

Example

The easiest way to fully understand impermanent loss is to go through a quick example.

LPs profit

Ok, now that we understand what impermanent loss is, let’s see how it can take away LPs profit as the value of one asset increases in relation to the other.

Other Pools

So, how about providing liquidity to other pools outside of Uniswap? Would that also result in impermanent loss? Let’s see a few examples.

DeFi education