What is Impermanent Loss in Crypto? (Animated + Examples)

Summary

Impermanent loss is one of the most misunderstood concepts in DeFi. This video uses concrete examples to show how the price ratio between two pooled tokens creates a divergence loss for LPs compared to simply holding the tokens.

Key Concepts

Things To Remember

• Impermanent loss occurs when pooled token prices diverge from when you deposited.
• The larger the price divergence, the greater the impermanent loss.
• Trading fees earned can sometimes offset impermanent loss.
• Impermanent loss becomes permanent when you withdraw liquidity.

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