Finance glossary
Impermanent Loss
Definition
The temporary loss a liquidity provider faces when a pooled asset's price diverges from when it was deposited.
Impermanent loss happens when the price of tokens in a liquidity pool moves relative to each other after a provider deposits them. Automated market makers rebalance the pool's holdings as prices shift, so the provider ends up with less value than if they had simply held the original tokens. The loss becomes permanent only if they withdraw while the prices remain diverged.
In a sentence
She hadn't accounted for impermanent loss and was surprised her pooled tokens were worth less than if she'd just held them.
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