šŸ“Š DeFi|Impermanent Loss
Ā· Key point: It’s called ā€œimpermanentā€ because the loss disappears if prices return to their original levels; when you withdraw your liquidity, it becomes a realized loss.
Ā· Why it matters: To decide whether providing liquidity is worthwhile, compare the fees earned against the impermanent loss. If the fees don’t cover it, you’re better off simply holding the tokens.
Ā· In practice: Trading pairs with two similarly priced tokens, such as stablecoin pairs, often have much lower impermanent loss.
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