Impermanent Loss

Impermanent loss is a decrease in the combined market value of cryptoassets deposited into an automated market maker (AMM) relative to the value they would have if not paired initially.

Impermanent loss is a type of opportunity cost caused by a deviation from the price ratio between the AMM liquidity pool's assets at the time of deposit and the price ratio at the time of impermanent loss assessment. Because AMMs use a constant product equation to determine the price (x * y = k), if the price ratio changes, a liquidity provider's withdrawal will be paid out in a balance that is discrepant from the 1:1 ratio at the time of liquidity provision.

Trading fees may offset impermanent loss.