Impermanent Loss

Impermanent loss is the difference between the value of assets deposited into an AMM liquidity pool and the value those same assets would have if you’d just held them in your wallet instead. It happens because an AMM pool automatically sells the asset that’s rising and buys the asset that’s falling to maintain its pricing formula — so a liquidity provider ends up holding relatively less of whichever asset performed better, and relatively more of whichever performed worse, compared to a simple buy-and-hold position.

It’s called “impermanent” because the loss exists only on paper while your position stays in the pool — if prices return to where they were when you deposited, the gap closes. But if you withdraw while prices have diverged, or the divergence never reverses, the loss becomes real and realized. Trading fees earned while providing liquidity can offset some or all of impermanent loss, but there’s no guarantee they will, especially during a large, sustained price move in one direction.

This risk applies specifically to pooled/AMM liquidity provision — it doesn’t apply to simply holding an asset, or to most lending deposits. See our full impermanent loss guide for the actual math and how to think about it before providing liquidity on Orca, Raydium, or Meteora.