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What is impermanent loss?

Written by DeFi Dad
Updated 7 months ago

The term impermanent loss refers to when a liquidity provider has a temporary loss of funds because of volatility in a trading pair. A liquidity provider can incur more impermanent loss when 2 tokens in a liquidity pool diverge in price (ie one token increases relative to the second token in the pool). Impermanent loss is limited or reduced when pool token prices move in sync up or down. 

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