In constant product AMMs like Uniswap v2 and SushiSwap, impermanent loss is computed by comparing the relative change in portfolio value V compared to a “holding” portfolio V_H in response to a small change P’→α P in the price of the underlying . where the range factor r = √(tH/tL).
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Impermanent loss (IL) is the risk that liquidity providers take in exchange for fees they earn in liquidity pools . If IL exceeds fees earned by a user when they withdraw, it means the user has suffered negative returns compared with simply holding their tokens outside the pool.
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