📉 What Is Impermanent Loss and How Can You Protect Yourself From It?
If you've ever added liquidity to a decentralized exchange like Uniswap, PancakeSwap, or Curve, you've probably heard the term "impermanent loss" tossed around — usually as a warning. But what does it actually mean, and how much should you worry about it?
This guide breaks it down in plain terms, so you can make informed decisions before locking your crypto into a liquidity pool.
What Is Impermanent Loss?
Impermanent loss (IL) happens when you provide liquidity to a pool made up of two assets, and the price of one asset changes relative to the other. Because liquidity pools use an automated market maker (AMM) formula to keep the pool balanced, the pool automatically buys and sells your assets as prices move — often at less favorable prices than if you'd simply held your coins in your wallet.
The result: when you withdraw your liquidity, the combined value of your two assets can be lower than it would have been if you'd never deposited them at all.
It's called "impermanent" because the loss only becomes permanent — meaning real — once you withdraw your funds. If prices move back to where they were when you deposited, the loss disappears.
