Impermanent Loss

Impermanent Loss (IL) is the temporary, unrealized loss in value a liquidity provider (LP) experiences when the price of their deposited assets changes relative to the time of deposit, specifically when the divergence between the assets in the Automated Market Maker (AMM) pool and simply holding them (HODLing) in a wallet results in a lower dollar value upon withdrawal. This opportunity cost is termed "impermanent" because it only becomes a permanent, realized loss if the LP withdraws their assets before the relative prices return to their initial deposit ratio.