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impermanent loss

im-PER-muh-nunt LOSS

ɪmˈpɜːrmənənt lɒs

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Syllable breakdown

impermanentloss

Dictionary meaning

the reduction in value that a liquidity provider experiences compared to simply holding the same assets when the price ratio of the two pooled tokens diverges from the ratio at the time of deposit; the loss is called 'impermanent' because it reverses if prices return to the original ratio, but becomes permanent upon withdrawal

Examples

  • She calculated she had suffered 12% impermanent loss after one token doubled in price.
  • Understanding impermanent loss is essential before providing liquidity to any automated market maker.

Synonyms: divergence loss, AMM opportunity cost, LP loss

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