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Impermanent Loss is a phenomenon that occurs when you provide liquidity to a liquidity pool and the price ratio of deposited tokens changes after you deposit them in a pool. For example, let’s say you deposit 2 tokens—Wrapped Bitcoin and USDT—, each worth $500, and the price of your Wrapped Bitcoin increases by 10%. Since your tokens are staked in the pool, your balance of USDT would increase, and your balance of Wrapped Bitcoin would decrease to maintain a ratio of 50%. In this case, your impermanent loss would cause you to gain less profit had you simply held your Wrapped Bitcoin (you’d have $1,048.81 vs. $1,050 if you held your tokens). The larger the change is, the bigger the impermanent loss, or the decrease in dollar value at the time of withdrawal than at the time of deposit. Impermanent loss occurs with a price change in either direction- either a substantial increase or decrease in the value of a token you have in a liquidity pair.
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