What it is
This loss occurs when the price of assets deposited into an automated market maker (AMM) liquidity pool changes relative to each other after being deposited. If the price ratio shifts significantly, a liquidity provider's share of the pool, when withdrawn, may be worth less than if they had just held the original tokens outside the pool. The loss is "impermanent" because it can reverse if prices return to their original ratio.
Impermanent loss is a widely discussed risk for participants in decentralized finance (DeFi), particularly those providing liquidity to automated market maker (AMM) pools. News and analysis often detail strategies to mitigate it or models that aim to reduce its impact. Retail investors engaging in yield farming or providing liquidity must calculate and understand this potential loss, as it directly impacts their returns.
Why it matters
Impermanent loss is a key risk for liquidity providers in DeFi, potentially reducing returns if token prices diverge.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice