Swapzone Glossary: Impermanent Loss

Providing liquidity can earn you rewards, but it's important to understand the risks.

One of them is impermanent loss.

Impermanent loss is the difference between the value of your assets in a liquidity pool and what they would have been worth if you had simply held them in your wallet.

Why does it matter?

1. It primarily affects liquidity providers in DeFi
2. Larger price changes between pooled assets can lead to greater impermanent loss
3. Trading fees and liquidity rewards may help offset some, or even all, of the loss

Understanding impermanent loss can help you decide whether providing liquidity is the right strategy for you.

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