Impermanent Loss
Definition
Impermanent loss is the opportunity cost a liquidity provider experiences when the price ratio of pooled tokens changes after deposit. The loss is 'impermanent' because it only becomes realized if the LP withdraws. For example, providing ETH/USDC liquidity when ETH doubles in price leaves you with less ETH and more USDC than if you'd just held. Trading fees can offset impermanent loss, but high volatility often makes simple holding more profitable.
Why Does This Matter?
Understanding Impermanent Loss is essential for anyone investing in cryptocurrencies or working with blockchain technology. This concept directly influences how projects are valued, how markets behave, and what risks and opportunities exist for investors.
How Does CryptoValue Use This?
At CryptoValue, fundamental concepts like Impermanent Loss feed into our proprietary Value Score — a rating from 0 to 100 based on 10 on-chain and market metrics. Our goal is to help you identify undervalued and overvalued coins, rather than just looking at price.
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