DeFi HUB / Impermanent loss
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Impermanent loss
Impermanent loss is the gap between holding the tokens and leaving them in a constant-product pool while the price moves. Fees can offset it. They do not erase the arithmetic.
Price doubles, fees ignored
Start with 1 unit of coin and 1,000 units of a stablecoin, price 1,000, pool constant 1 × 1,000 = 1,000. The coin’s price goes to 2,000. The constant-product pool then holds about 0.707 of the coin and about 1,414 of the stablecoin. That position is worth about 2,828. Holding the original coins is worth 2,000 + 1,000 = 3,000. The gap is about 172, a bit under 6% of the hold.
The name “impermanent” means the gap shrinks if the price returns, before you withdraw. If you withdraw at the new price, the gap is realized. This sketch ignores fees, concentrated ranges, and more than two tokens. A venue’s own position page is the one that matches its formula.
Questions
Does a higher fee tier remove impermanent loss?
No. Fees are income. Impermanent loss is a price-path result. Income can be larger or smaller than the gap. You only know after the path.