Impermanent Loss

Impermanent loss describes the gap between simply holding assets and placing them into a rebalancing liquidity pool when prices move. The loss is measured against the hold strategy, not against the original dollar value alone.

The name can be misleading because the effect becomes real the moment you withdraw. What stays "impermanent" is only the possibility that relative prices move back again before you exit.

That underperformance is the cost of continuously offering liquidity across changing prices. The pool is effectively buying low and selling high for the market, not for your untouched portfolio.

This is why liquidity provision is best understood as an active market role, not just as "earning yield" on idle assets.