Impermanent Loss
Last updated 17 October 2026Last verified 17 October 2026
What is impermanent loss in DeFi?
The relative loss an LP takes versus simply holding the two assets, caused by price divergence between them. Not loss versus cash: loss versus the buy-and-hold alternative. "Impermanent" is a misleading label: the loss becomes permanent if the LP withdraws before prices revert. The higher the correlation between the two assets, the lower the impermanent loss risk.
TradFi equivalentAdverse selection against a market maker's inventory. The pool quotes continuously and is picked off as prices move, so the loss is measured against holding the inventory rather than against cash.