Impermanent loss

Impermanent loss is the difference in value a liquidity provider experiences between depositing assets in an automated market maker pool and simply holding those same assets, caused by changes in their relative prices. When one pooled asset moves in price relative to the other, the pool automatic rebalancing leaves the provider with more of the weaker asset and less of the stronger one, so the position is worth less than an unpooled holding would be.

It is called “impermanent” because the gap can shrink if prices return to their original ratio. Fees earned may offset it. A misconception is that it only appears on withdrawal—it exists on paper whenever relative prices diverge.